Good morning, Hubsters. MK Flynn here with a jam-packed newsletter today.
There’s a lot happening this morning, including several exclusive interviews from PE Hub, PE Hub Europe and Buyouts.
We’ll kick things off with a brand new deal from HGGC, then a look at an exit from LMP and then a fresh fundraise from GSP.
Plus, we dive into what’s shaping up to be an interesting bidding war involving Bain Capital and Triton Partners for a Finnish construction company.
We’ve also got insights on dealmaking from MoFo and a plug for Women in Private Equity.
Ownership model. HGGC announced this morning a majority investment in Dentive, a Provo, Utah-based dental services organization founded in 2019.
The Palo Alto-based mid-market PE firm’s investment is the first outside capital for Dentive, which provides management services to entrepreneurial, doctor-run dental practices, primarily in the western US.
Under Dentive’s model, a partner dentist or practice that’s acquired will roll equity to maintain some ownership of the practice. Then they also have the opportunity to invest in, or roll equity into, the broader Dentive platform.
“We think their ownership or equity model is really a compelling model,” Pat Dugoni, principal, HGGC, said in an exclusive interview with PE Hub’s Aaron Weitzman.
Private equity has been in dentistry for many years, but there is still fierce fragmentation in the industry.
“Somewhere around 70 percent of the industry is still independent dental practices,” Dugoni said. “So that’s over 100,000 independent dental practices. We think there’s just a lot of opportunity for many years to continue to grow and build an M&A platform in dentistry.”
For more, read the whole story here.
Flywheel effect. Lovell Minnick Partners (LMP) announced earlier in January that it sold National Auto Care (NAC), a provider of finance and insurance products and programs for the auto industry, to APCO Holdings. The sale generated a multiple in the lower teens, sources told PE Hub’s Obey Martin Manayiti.
Growing demand for recreational vehicles during the pandemic and an aggressive and prolific M&A strategy are among the factors that helped NAC grow during the four years that the Radnor, Pennsylvania-based private equity firm owned the Ponte Vedra Beach, Florida-based company, said LMP partner Trevor Rich in an interview with Obey.
To accelerate NAC’s expansion, LMP put M&A at the center of its strategy. During the first 18 months after acquiring NAC, LMP laid the groundwork in terms of reorganizing the management team, putting the systems, technology and infrastructure in place for the 21 acquisitions that followed.
“We came in with a very specific thesis around vertical integration,” he explained. “At the time of our investment, NAC was a pure-play administrator. It created and administered the product, but it was all distributed through third-party agencies, and our view was to go and purchase those agencies.”
The aggressive M&A strategy created “a flywheel effect,” as NAC was creating a total package of products that allowed it to eliminate third parties and deal directly with dealerships.
Franchise finesse. In a rocky fundraising market, Garnett Station Partners, led by former Apollo and L Catterton associates, closed a fourth buyout fund in quick time.
GSP 4.0, launched six months ago, wrapped up in January at its $850 million hard cap, ahead of a $750 million target, managing partners Matt Perelman and Alex Sloane told Buyouts’ Kirk Falconer. The vehicle is larger than the 2021-vintage GSP 3.0, which secured $600 million.
Founded in 2013 to invest in lower-mid-market consumer and franchise businesses, the firm has made 15 platform investments. Target opportunities are US multi-unit franchised, consumer and brick-and-mortar companies in sectors like food and beverage, health and wellness, automotive and business services “anchored on foot traffic,” Perelman said.
GSP 4.0, which is expected to do up to five platform deals a year, has yet to make a debut investment. Garnett Station’s latest deal, announced this month, was the recapitalization of Flagstop Car Wash, an express car wash chain. It also last year invested in the growth of Woof Gang Bakery & Grooming, a pet services and specialty retail franchisor.
Garnett Station has to date realized seven investments. The most recent is Ojos Locos, an Hispanic-focused sports bar concept backed in 2018 and sold last year to an unidentified private equity firm.
For more on Garnett Station, including the firm’s unique backstory, read the story here.
Focus on profitability. With dealmaking slowing, a big theme this year for PE firms is portfolio optimization.
The trend is highlighted in Morrison Foerster’s report on Global Private Equity Trends 2022 and Outlook for 2023, which came out this week.
“With rising costs and tighter credit markets we expect private equity funds to focus on optimizing the performance of their portfolio companies, focusing on profitability,” said Marcia Ellis, global co-chair of the firm’s private equity practice. “Debt market conditions will improve over 2023, especially if the Fed fund rate peaks or plateaus. This will also affect the pace of exits as the economic situation improves in certain countries or regions.”
“Tech investment will continue to be a bright spot for private equity relative to the overall market,” said Patrick Huard, global co-chair of the firm’s private equity practice, “especially in agriculture, FinTech and healthcare as investors seek market advantages in a challenging environment. Other themes to watch in 2023 include more in-market consolidation and strategic asset sales to cut debt as private equity investors look to optimize their portfolios.”
“We expect continued uncertainty in the market this year,” said Mitchell Presser, private equity partner and co-chair of the firm’s food and agriculture practice. “However, with dry powder ready to deploy, private equity investors will continue to prioritize quality acquisitions while protecting against downside risk by utilizing more structure, targeting distressed assets, and turning to club and syndicate deals.”
Competition questions. A Finnish construction company has become the potential test case of a new focus from global regulators on antitrust issues in private equity, writes Craig McGlashan, editor of PE Hub Europe.
As Bain Capital and Triton Partners compete for Caverion, a construction company headquartered in Vantaa, questions about private equity firms owning companies in the same sector are emerging.
In a posting on the Nasdaq Helsinki website, the Bain Capital-led consortium said that the Triton-led consortium’s bid “does not include references to Triton’s ownership of one of Caverion’s key competitors, Assemblin, and the expected complexity and remedy requirements resulting from this overlapping investment.”
“This does go to a very interesting issue, namely the way in which antitrust authorities are now thinking about private equity sponsors, and specifically whether interests held in different funds or through different structures can be considered to be independent if there is common ownership at the top of the chain,” an M&A lawyer told PE Hub Europe on background. “This will be an emerging theme on both sides of the Atlantic in the next couple of years.”
There’s much more to the story, which you can read here.
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Women in PE: Time’s running out to nominate candidates for our Women in PE feature that runs in March. We’re looking for recommendations from you, Dear Reader, on rock star women in the industry. We’re mostly interested in women working on the deal side of the business, since that is the area that has traditionally been dominated by men, but we will include women who work in IR and on the LP side as well.
Send recommendations to Buyouts’ Chris Witkowsky at email@example.com by Jan. 23.
Fastest women in private equity? Before I sign off today, I’d like to give a shoutout to Sara Passani, assistant vice president of The Riverside Company.
Passani recently raced the USA Marathon Championship, finishing 21st out of all women at 2 hours and 34 minutes or 5:53 per mile. That time qualifies Passani for the 2024 Olympic Trials, and also ranked among the top 50 women in the US.
In her professional life, Passani recently closed the acquisition of BloodHub and has also worked on several exits.
What’s the connection between racing and PE?
“Marathoning is a ‘Type A’ fun that requires hard work, discipline, and patience – all of which translate seamlessly to PE investing,” Passani said. “Beyond those similarities, running allows me to tend to my physical well-being and provides an outlet where I can refocus prior to approaching the workday with a clear mind.”
On that inspiring note, I’ll sign off.
Aaron Weitzman is on Wire duty tomorrow, and I’ll be back with Monday’s newsletter.