Five Questions With…Watts Hamrick and Scott Perper, Managing Partners, Pamlico Capital

1 Of the firm’s three target areas—business and technology services, communications and health care—where do you see the most opportunity?

WH: We see solid investment opportunities in all three areas. In our most recent advisory committee meeting, when we went through our active deal pipeline, not only was the pipeline filled with opportunities across all three areas, but of the deals that are in active diligence, all three areas are represented. In addition, as we look at the acquisitions that are in process for our portfolio companies, those are spread across all three industry sectors as well. As we invest the remainder of Pamlico Capital II, we believe each of those sectors will be represented with additional investments.

2 You both have backgrounds in media but that doesn’t seem to be a focus of the firm. Why not?

WH: Over the 22 years that we’ve been in business, we’ve focused on a number of industry sectors and we move in and out of those sectors as we see opportunities. Health care, media, communications, business and tech services have all been core to our portfolio. Right now we have our media effort folded into our communications effort. It’s not that we’ve de-emphasized it, it’s that right now, given that traditional advertising models are under pressure, and that players in the traditional advertising base models are largely consolidated, we think there are better opportunities for us, particularly from a platform perspective, in some of our other niches.

3 How does the health care reform bill affect Pamlico Capital?

SP: To us the legislation was mainly about providing coverage to more people. We think health care providers will still be under pressure to reduce costs. Therefore, our focus has been and continues to be around businesses that help in the cost containment area. One of the businesses that we have invested in is Greenway Medical Technologies, which provides electronic medical records and IT systems for physician practices. We believe this is the right kind of business that can help physicians with their cost containment.

4 The firm has exited seven companies since July 2008, but hasn’t done a platform investment since then. Why not?

SP: It is true that we have exited a number of companies over the last 18 months. However, we have also made 17 different acquisitions through our portfolio companies. So while we have not necessarily been active creating new platforms, we have been extremely active building on our existing platforms through acquisitions. In addition, in the second half of 2008, we created a platform company, which is in the managed services and data center business, and we have made two acquisitions during the life of that investment.

5 Wasn’t it a bad time to sell in 2008-2009?

WH: Actually, if you look at the overall results that we were able to achieve, our exits produced excellent multiples of cash on our original dollars. We exited Randall-Reilly, a proprietary business-to-business publishing firm that we bought in 2006. We sold it in 2008 at 5.1x our money. Sonitrol was another business we bought earlier in the decade, and we exited in 2008 at 3.1x our money. If you have good, strong-performing companies, exit opportunities can present themselves.