GTCR has reunited with some familiar faces to launch the Chicago private equity firm’s new platform investment, Blucrest. The move marks GTCR’s second partnership with David Inns, Lynn Herrick and Bill Yates, whom the firm backed in 2017 with the acquisition of GreatCall, a provider of connected health and personal emergency-response services for senior citizens across the US. In their roles as CEO, COO and CMO of GreatCall, the team took the company from pre-revenue in 2006 to an acquisition by Best Buy for $800 million in 2018.
PE Hub interviewed GTCR’s David Donnini, managing director and head of business and consumer services, and Tom Ehrhart, principal.
Blucrest was announced earlier in the month; no financial terms were disclosed. So far, Blucrest is three people, an idea and a capital commitment from GTCR.
While GreatCall focused on personal emergency devices, Blucrest will “acquire companies and assets to build a consumer services business focused on products that simplify people’s lives,” said Donnini. Blucrest will avoid personal emergency devices to avoid competing with the team’s prior company.
“Now they’re partnering with us again, and that history and business model is something we’d like to find another opportunity to develop,’ said Ehrhart, referring to the trio of executives. “When we say that, we mean there will be a product element to it and a recurring subscription. Some examples could be the smart home space, including the remote monitoring of cameras, or the self-installed security or the smart doorbell that then have cloud-based storage, video monitoring, sometimes video verification, on the back end. The purpose of the product is that it gives you that insight, peace of mind. From a business perspective, the attachment of the recurring revenue makes it really attractive. Those are the types of businesses and models, we’re looking at — those with a product element with an actual back-end service and a subscription model.”
GTCR’s The Leaders Strategy is about backing teams that have been there, done that — and can do it again.
“If they’ve been successful in these business models or in these industries in the past, we get a high degree of confidence, and they get a high degree of confidence in their ability to do it again,” he said. “We like to back teams that like to invest in themselves. Finding those teams that are a little more interested in developing a thesis and partnering with us to identify opportunities — we always find it really exciting. And there’s benefits for them to be at the ground floor of the diligence, to seize the opportunity, as opposed to us finding an acquisition.”
Although the investing waters are as choppy as ever today, Ehrhart said that for the “good opportunities,” the firm is still finding ways to finance those.
“Specifically for consumer subscription businesses, we’re still seeing opportunities,” he said. “They’re more recession resilient, maybe not growing at the same relative rates, but a lot of these are non-discretionary purchases by nature. The business model that they’ve built in the past is usually one that is consumer friendly. That is, no long-term contracts that build an efficient customer acquisition engine, so we can provide these services at affordable prices. We don’t view it as macro-exposed as some other areas that we invest in. We’ll still see activity, but it’s a lot more difficult to finance larger transactions, and a lot more costly from a debt perspective than it was six months ago.”
Activity is not down in all parts of the market, however, according to Donnini.
“We’ve seen this in other periods, when we do a fair number of corporate carve-outs, for instance, and corporate selling tends to increase in these types of environments,” he said. “A lot of public companies find it a good time to kind of get back to their core. That’s non-strategic assets, etc. We’re seeing more activity in that regard, and in a lot of ways, as we have in past periods like this.”
He also noted that GTCR buys a lot of family businesses.
“What drives families to sell is often independent of the market cycle and more a function of what’s going on in their personal situations,” Donnini explained. “PE to PE activity is certainly down, but that is not as big a part of what we do. Probably for these types of businesses in particularl, it’s not as likely a place for us to be necessarily finding an opportunity. I think we would anticipate less impact from that.”
He added that after the financial crisis, the firm did a lot of carve-outs and saw a lot of that in those periods. “Nobody’s necessarily saying we’re quite there yet in this period, but we’re closer than we were a year ago,” he said.
To learn more about GTCR’s investment strategy and The Leaders Strategy, read PE Hub’s profile of the firm’s healthcare investment approach here.