Describe your Industry First technique of developing a thesis around a growth market and then investing from there.
Industry First is a proprietary, research-based approach that provides us with a focus of who we are and what types of investments and industries we’d like to invest in. Our most recent investment, Marquis Software Solutions, [announced in September], was the result of our Industry First campaign. They provide technology that enables marketing services for small and medium-sized banks and credit unions, as well as compliance software for the same group of clients.
Banks are increasingly turning to third-party providers to help deliver more actionable information and a greater understanding of opportunities within their existing product base. To manage their compliance requirements, banks typically go outside their own organizations. That was the market for Marquis. It had a good name in the market and strong market share with more than 400 bank and credit union clients.
Hugh McColl is a big name in the banking industry and is on your roster as chairman. What’s his role at the firm?
Hugh and I started the firm almost 11 years ago with [partner] Ed McMahan. He has an office with us and he’s on the investment committee. He knows about every deal we’re looking at and thinking about investing in. We have a five-person investment committee and we take action on unanimous consent. He’ll participate in deal calls with us occasionally. Or he’ll make calls on fundraising. He’s necessarily very well-informed about everything we do, although he is not involved in the day-to-day operations of the firm.
As Dodd-Frank and other regulations evolve, what kinds of opportunities you are seeing in banking?
We’re continuing to look for opportunities in the heavily regulated environment that these companies operate in. Banks, which are under increasing scrutiny, are looking for ways to automate the compliance process, especially with low interest rates creating an unfavorable climate for them. They’re looking for a way to grow out of that.
What’s the thesis around your investment in American Safety Council and the online training and education space?
American Safety Council offers online training and education, focused on driver education, workplace safety and other regulatory-driven training, such as helping employees at CVS learn to give flu shots.
One of the big revenue drivers for American Safety Council is online driver’s licenses. The company provides online remedial training if you’ve gotten a traffic ticket. We offer courses on behalf of insurance companies, since a better-educated driver is a safer driver.
This is a high-margin and a high-growth business and it’s one we like a lot. We could do two or three small add-on deals per year or we may do something larger. We’re looking at that since it would be more efficient — the regulatory approval process takes as long for a smaller company as it does for a larger one. We now have the company at a point where it can scale up. We’ve improved their infrastructure and they have a strong management team. It can handle a larger acquisition.
Looking ahead, would you consider buying something not within the business-to-business sector or outside of your Industry First approach?
Outside of our Industry First focus, we’ve done deals such as Bojangles’, a restaurant chain that we sold to Advent International in 2011. We look at a lot of different deals across the spectrum. We’ve had Industry First campaigns built around companies that sell to consumers. But we’ve been more cautious there … and we see fewer opportunities. But it doesn’t mean we don’t go there if we see one we like.
Edited by Steve Gelsi
Photo of Marc Oken courtesy of Falfurrias Capital