Independent Sponsor Spotlight

Meet Sam Henderson, Co-Founder & Partner of Hullson Partners and a member of the Independent Sponsor Forum Steering Committee.

Sam sat down with Stephanie McAlaine, Executive Director of the Independent Sponsor Forum, to discuss the growth and acceptance of independent sponsor-led deals in lower middle market investing.

What gives you optimism about the Independent Sponsor investment space and why is this a good place to be putting money to work these days?

“Deal-by-deal access, with no capital commitment mandates, versus a blind pool, has broad appeal.”

The deal-by-deal Independent Sponsor model has come into greater favor because it affords all the investment partners the maximum amount of flexibility on two fronts – we decide when the optimal time is to deploy capital to positively impact value creation and investors have flexibility in choosing which is the right investment opportunity given their industry preferences and liquidity status.  This is a starkly different approach from making blind pool investments with a committed fund where LPs are contractually obligated to fund, per LP agreements, regardless of their current liquidity situation or industry preference.  Moreover, because each transaction is unique and independent, each deal’s capital sources, and structure can be customized to align with the businesses and investors’ strategy.

What are you looking at now, deal-wise? Who do you want to meet?

At Hullson, we want to meet and help business owners who are seeking first-time outside investment to help grow their business or to accomplish their goals for a succession transition.  This is a relationship business, and we know that a founder needs to trust and have confidence in the team they are selling their business to – we’ve built an efficient deal sourcing strategy to leverage our network and identify these business owners.

Having closed a transaction last November in commercial landscaping services (Realty Landscaping), we are busy looking for add-on opportunities in related sectors to help scale the business, along with potential new platform investments within the business services vertical.

“Targeting business services and sub-verticals within that space, including facilities management, construction and residential services.” 

What are the biggest challenges to success as an Independent Sponsor?

The challenge for an emerging independent sponsor isn’t finding a deal, the key is finding the right deal!  How do you know it’s the right deal?  You need all the ingredients:

• • A “transactionable” opportunity (i.e. the owner is looking to sell),
  • a reasonable valuation,
  • in a sector you like/know,
  • a stage of business where you can add value, and
  • that capital providers will be interested in.

When you get these ingredients right, then the capital comes to you!

“Finding the RIGHT deal, is much harder and more important than finding A deal!”

What or where are the biggest opportunities?

A stat that keeps Sam optimistic about this end of the lower middle market is this: “In ~2011/2012, economists forecasted a trend where each day – for the next 20 years – over 10,000 baby boomers would be turning 65. Additionally, these baby boomers own roughly 65-70% of all assets under $50M of value.”  So, we are in the middle of the largest wealth transfer in history and often times these boomers have no natural succession plan in place, yet they want the legacy they have built over their lifetime to continue. This is where private equity, and specifically independent sponsors, can provide business owners a flexible capital solution to meet their transaction goals while positioning themselves for additional long-term upside should they desire it.

"We are in the middle of one of the largest wealth transfers in history.”

Where did your last deal come from? Source wise?

The Hullson co-founders, both huge (yet somewhat dissatisfied) Phillies fans, quelled their disappointment at missing out on the World Series in Q4 by closing their first deal.  And, while they saw a number of opportunities before this one, they simply weren’t the right fit.

This leadoff investment in Realty Landscaping aligned to a thesis they had developed on growth opportunities in the facility services space.  This deal fits within this thesis and is a regional platform that can be built on – through the right scale and the use of technology to add on ancillary facility services – whether in multi-family home landscaping; asphalt repair, power washing, line striping, or other services.

Reinforcing the old axiom, it’s all about the relationship - Hullson leveraged a long-standing business relationship to partner with one capital provider on the deal – Hidden River Strategic Capital.

Hopefully, it will be a home run.

“This deal had both the right scale and the right framework to leverage technology to add on ancillary facility services”