“Opportunity is missed by most people because it is dressed in overalls and looks like work.”
—Thomas A. Edison
The sentiment above captures the essence of Roebling Capital Partners’ approach to building business value in the Lower-Middle-Market (LMM). Because while all the businesses we and our affiliates invest in show a history of profitability, there are aspects of LMM companies that require substantial improvement for our investment thesis to be realized.
In other words, we buy good businesses that aren’t performing as well as they could be, because we see the opportunity that capital and hard work can deliver. Often we’re the first institutional capital that our portfolio companies have had. By injecting capital and know-how, we aim to create value between our initial investment basis and the eventual sale of the business to the next owner.
What Makes Roebling Capital Partners Different from Other Investors?
Many investors focus on the work that goes into an acquisition, but few focus on the work that starts after the ink is dry on the Purchase and Sale Agreement. Private equity owners in large, high-profile deals are often criticized for short-term profit-seeking that can lead to job losses or business restructurings. But not all private equity investment situations are the same. We believe the LMM presents an opportunity to create value by investing in people and systems rather than by cutting either.
Our Approach to Growth: Roebling Value Added™
We call our approach Roebling Value Added™ (RVA™) and use it to organize our efforts to professionalize and grow our portfolio companies. Before a private equity investment is completed, we identify and then focus on broad categories of work such as:
Strategy and Planning: We start building the growth plan before a transaction closes and work closely with management to leverage their domain expertise. Many LMM businesses have been run as lifestyle businesses, generating a good living for owners, rather than pursuing riskier but potentially more lucrative opportunities. Our investment is just the start—we also strategize whether growth involves new locations, new product development, or additions to the workforce.
Management Transition: The impetus for many LMM business sales is to generate liquidity for the seller to diversify the investment portfolio and reduce the time commitment of the owner—not necessarily in that order. For such owners, one likely option is to sell the business to another similar owner-operator: a win-win situation.
RCP assists in the new ownership by providing capital and advice on how to transition key elements such as decision rights, communication, coordination, and incentive structures. RCP also assists in refining the organizational chart to add depth and breadth to the skillsets needed to accelerate the execution of our strategy.
Systems Upgrades: Real-time evaluation of the success of investments in the business is key to achieving our goals. In addition to making investments in people and infrastructure, we’ve found it also helps to have modern Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems that enable efficient and fast feedback loops, as well as accurate financial reporting and performance measurement.
Our approach may seem simple, but it’s not easy. The RVA™ difference is realized when we create the value and achieve the growth potential we knew was possible with hard work. We’ll dig deeper into RVA™ and what it means for business owners in the coming months.
ABOUT THE AUTHOR
Wes Goebel is a Managing Director at Roebling Capital Partners, a lower-middle-market private equity investment firm.