PE Hub’s Q&A series with high-profile private equity professionals continues February 9 with insights David Reuter, partner, LLR Partners. Founded in 1999, the Philadelphia firm invests in lower middle-market technology and healthcare businesses. LLR is currently investing out of its sixth fund, which closed in 2020 at $1.8 billion, bringing the total raised to more than $5 billion. The firm saw a record number of investments, exits and new hires in 2021.
2021 was a big year for private equity in general, and LLR in particular. Please give us update on the firm’s activity.
It certainly was a big year for the market! And we were active, too – LLR invested in 13 new platforms, supported our portfolio with 26 acquisitions, and we completed seven exits and one public debut via a SPAC merger. We added 24 new people to our team, expanded our value creation programs and continued to advance our internal DEI initiatives. LLR focuses on tech and healthcare investing and there are three common themes across all of our new investments: consistent revenue growth, strong market position and great leadership teams.
What are the add-on potentials?
Most of our 45 portfolio companies are acquisitive. For the new platforms added in 2021, we are seeking software and tech-enabled add-ons in areas like employee and customer engagement; corporate social responsibility management, video and data insights, wealth management, payments and mortgage technology; data center services; fleet management; EHRs and patient engagement; hospice care; and life science products distribution.
How has LLR’s investment thesis evolved over the last two years, in the covid era?
Our investment strategy has remained consistent since we started over 20 years ago – as explained above, we look for consistent revenue growth, strong market position and great leadership teams in tech and healthcare businesses. It really did not change in the past two years. The one covid era factor that came into play is to make sure we can understand how businesses changed because of covid and what might change for them in the future. Some saw covid-related boosts, others faced covid-related declines. Some will experience permanent change because of covid, while others will return to their past performance. The covid question in the future is a hard one to answer on almost every business.
What are the software trends driving deals?
We focus on B2B applications, and it is all about labor and process efficiency – what can be automated to enable companies to do things better, faster, cheaper? It started with back office and paper-based processes, but has expanded to everything about the business.
Valuations are notoriously high in the software sector. What kinds of valuations are you seeing, and what’s your strategy with respect to prices the firm will pay?
Valuations are high across the board with growth companies, because investors appreciate the benefit of compounding growth. We believe LLR has a robust sourcing capability to find attractive investments that are valued at reasonable levels to drive the returns our investors expect. We then believe we can effectively diligence these prospects to find the strong businesses to invest in. And lastly, LLR has expanded our value creation team to drive faster growth and stronger profitability in each portfolio company.
What keeps you up at night?
Finding talent. For us at LLR and for each portfolio company. And then being creative at retaining talent. With our 24 new teammates onboarded in 2021 and more to hire early this year (at the time of writing this, we have 6 open full-time positions), LLR will be over 100 employees in 2022.
What are you most excited about in 2022?
Having more in person meetings one day soon.