21Aug/17

Family Offices Bypass Private-Equity Funds

They turn to direct investments in private companies in the hopes of earning market-beating returns.

June 9, 2017  By: Sonia Talati

Now it’s the private-equity industry’s turn to get disintermediated. That at least is the conclusion of a study by the Family Office Exchange, one of the nation’s leading family-office research outfits that in the past Barron’s Penta has exposed as having conflicts of interest. FOX says most family offices today are increasingly bypassing private-equity funds and their 2/20 fees, and investing directly in private companies. In fact, 81% of the 118 family offices surveyed by FOX this year have hired staff to invest directly in private firms.

It’s easy to see why. These direct investments returned 8% on average in 2016, compared to the private-equity industry’s 6% return for the same period. FOX says this trend to invest directly has picked up speed in the last three years and is likely to stick around. The research firm currently estimates that family offices have 5% of their private-equity allocation invested via funds and 7% directly, the reverse allotment of just a year ago.

Liesel Pritzker Simmons extracted $500 million of inheritance in 2005, after winning a lawsuit against her family’s trust. Her family office, Blue Haven Initiative, is now entirely dedicated to earning market-rate or better returns while investing in firms that have positive social and environmental impact. So she is investing directly in private companies. Like many other family offices starved for superior returns and wanting to trade on their competitive advantage—the ability to invest for the long turn—Pritzker Simmons believes that direct investing in private companies with a similar mission is the preferred route.

In many ways it makes sense. Instead of paying the 2% management fee and 20% of profits to a private-equity firm, family offices can cut their costs by investing directly in a private company. Furthermore, unlike private-equity firms which rely heavily on leverage, family offices typically prefer an all-cash deal, massively improving the odds of success—and their chances of earning above-market returns.

True, there’s a lot of sweat equity involved in doing this right, but many family offices are run by individuals who built their own businesses and are comfortable interacting with private management. The approach in fact raises confidence levels and lowers risks because it gives the family-office management a chance to “have full transparency as direct owners of that business,” says Jeremy Swan, principal and National Director of CohnReznick’s private-equity and venture-capital advisory firm.

Of course, not every family office is ready for prime time. There is considerable internal family-office capacity that has to be put in place to do this effectively. “They need the right team and processes in place,” Swan says. If a family office is going to act like a private-equity firm, it in effect needs to become a professional operator itself, from conducting proper due diligence and screening to managing its ongoing portfolio risk. “While private-equity deal flow has picked up, it’s very hard for family offices to generate a deal flow as well as general partners [or private-equity firms]. They’ve been at it for a long time,” says Rob Elliot, vice chairman of multifamily-office Market Street Trust.

But family offices are clearly and increasingly climbing up the direct-investing learning curve, and it’s a boon for smaller, family businesses seeking funding or exits. Families who have reached the point where it’s time to sell or cede ownership, but are still emotionally attached to the businesses they have built, often feel more comfortable selling to another family than they do an impersonal private-equity fund, which is often determined to make dramatic changes to the business so the fund can get its money in and out in a tight, five-year or so time frame. In contrast, they often feel that family-office buyers are invested in their business for the long haul, says Swan.

Some family offices, poorly executing their portfolio of direct private-equity investments, will undoubtedly be disappointed by their results. But for a family office prepared to roll up its sleeve and do this messy work right—deep satisfaction and above-market returns are likely to be its result.

Source: Barron’s

21Aug/17

Why Does a Savvy Public Stock Fund Manager Choose Private Equity?

I have encountered a wide range of investors over my 25 years in the investment management industry. While they often differed in their investment philosophies, time horizons, and risk preferences, they agreed on the importance of diversification, transparency and growth when investing for the long term.

From a public investing standpoint, the goals of diversification and transparency can be relatively easy. The investments are typically in publicly traded equities with daily pricing. I was an investment manager of a fund focused on public growth equities, where the primary objective was capital appreciation. The fund provided transparency and liquidity while generating significant capital appreciation over a long term time horizon.

I utilize the same philosophy in my personal investing. Hence, the traditional “blind pool” private equity funds held little allure to me, as I often didn’t know what I was investing in, the potential return and the specific time horizon.

However, one of the major trends in private equity today is that more individual investors are eschewing the traditional “blind pool” funds, and are engaging in direct investment in Private Equity deals. As a direct investor in several private equity transactions as well as a career money manager in a public equity fund, it is interesting to note that the advantages of the direct investment model in Private Equity can mirror some of the advantages of investing in public stocks as highlighted below:

  1. Better control over each investment

Unlike the committed funds, where individuals are bound to participate in all investments of the fund, irrespective of the risk profile and personal choice, direct investing allows the investors to understand each investment on its own merits. Thus, they are able to invest a higher or lower dollar amount depending on their knowledge of the industry, risk profile of the particular transaction, and their personal capital management.  This allows investors like me to be in control of the decisions such as; a) Where to invest (specific company) and b) What to invest (debt/equity).

  1. Diversification

Committed funds often choose to invest in a particular industry, geography or size. While that may work for some investors, it may not work for others who may be looking to invest a limited amount of capital across a wide range of criteria.

Conversely, a direct investment allows the investors to choose and invest based on the sector, business life cycle (growth, acquisitive, mature, etc.), and capital needs (growth, turnaround, acquisitions and/or financial restructuring), balancing the current risk and return of their portfolio.

I have found this to be particularly helpful as it encourages me to take a deeper look into a variety of industries and sectors, encouraging a more thoughtful approach to my overall investment portfolio.

  1. Current income and future growth

As mentioned earlier, individuals can invest in various levels of the capital structure thus providing for capital appreciation (equity) and/or current income (interest/dividends). The flexibility in investment structures with both debt and equity components provides another method of diversifying one’s investment portfolio.

 

All the above also leads to greater transparency since the individual investor has a lot more say over how and where their money is invested.

Important aspects of direct investing include trust, competency of the financial sponsor, and the ability to communicate regularly and honestly. The sponsor needs to identify appropriate investments and be clear about what would make the investment successful as well as what could go wrong. Regular, periodic communication is key to ensure that the investors are aware of how the investment is performing – during both positive and challenging periods.

As an investor in several transactions of Cave Creek Capital Management (CCCM), I find that well-structured and competent managers like Cave Creek Capital Management, work hard through active involvement on the Board and provide additional support through sales introductions, team augmentations, business planning as well as other skills to grow an investment and mitigate potential losses early. They also provide me with regular updates on all my investments so I stay informed. The team at CCCM is always available to answer questions.

Ideally, a direct investor should be very familiar with the investment manager over an extended time period before investing. I’ve known Kevin Fechtmeyer and CCCM for several years, and the average investor in his group has been investing with CCCM for over 15 years. This is vital to proving a track record of performance and communication, which gives me greater comfort in my investment decisions.

Meighan Harahan has more than 25 years experience in the investment management industry. Ms. Harahan managed the Driehaus Mid Cap Growth Strategy with over $1 billion in assets generating a top 1% rating among peers over a 10 year period. Driehaus Capital Management, LLC, an institutional investment management boutique in Chicago, Illinois focused on small and mid capitalization growth companies utilizing fundamental and technical analysis.

The views expressed are personal. As told to Vibhuti Nayar

 

14Dec/16

Denny’s staff donates time, tips to surprise needy families

SCOTTSDALE, AZ (3TV/CBS 5) –

The wait staff, managers and cooks at a Scottsdale Denny’s canceled their own Christmas party, and instead threw a party for four struggling families.

“We normally do a white elephant for $20 each, but we don’t need a gift from each other,” manager Elizabeth Cervantes said. “We decided to get presents for other people.”

They agreed to help one family, but the number quickly grew to four.

Cervantes found the families on Facebook.

One is struggling financially, two are victims of crimes, and the fourth is dealing with medical issues.

Together with some of the restaurant’s regular customers and others, the Denny’s staff arranged an early Christmas for the families Wednesday night at the restaurant near 7000 E. Mayo Blvd.

Each family was treated to dinner, a Christmas tree, presents and more. Each child received a new bike.

One mother wiped tears away, telling the Denny’s staff that her family was unable to celebrate Thanksgiving. She said without their generosity, they would not have been able to have a Christmas either.

“It touches my heart to know we helped these people,” Cervantes said.

Single mother Tisha Morgan, of New River, came with her kids, including her 1-year-old, James. He uses a feeding tube and requires care 24 hours a day.

“I’m so thankful and grateful for this. I don’t know what we would’ve done without their help,” she said.

The Denny’s staff members looked on, proud of their contributions.

“It’s so neat to see something we just thought about doing two weeks ago become so beautiful,” said Shere Baker, an overnight waitress.

Copyright 2016 KPHO/KTVK (KPHO Broadcasting Corporation). All rights reserved.

Source: AZ Family

13Dec/16

Cave Creek Capital Closes Investment in Air Waves LLC

October 24, 2016

Cave Creek Capital (“CCCM”) is pleased to announce its investment in Air Waves LLC (“Air Waves”), a leading provider of on demand garment printing and fulfillment services. Air Waves services several major online retailers, including Amazon, Zulily and Walmart.com by offering thousands of creative, high quality apparel products with rapid turnaround time and “mass customization” capabilities unmatched by competitors. As apparel sales move online, Air Waves is uniquely positioned to offer products and services that enable E-tailers to improve their quality, selection and turnaround time for end customers.

CCCM’s recapitalization funded a repurchase of shares from Management, in conjunction with a strong team of investment partners, including Stewart Capital, C3 Capital, and Northwood Ventures. “We are looking forward to expanding our business with the help of our new partners.” said Kyle Kantner, CEO of Air Waves.  “Our new partners can provide the financial resources and strategic and operational assistance we need to continue our 30% annual growth” states Dan Kaiser, Air Waves CFO.

Cave Creek Capital has an extensive track record of successful investments where Founders can gain personal liquidity, add growth capital and continue to run their companies. CCCM offers the best of a Family Office combined with an institutional investor’s resources.

06Dec/16

Airwaves Case Study

Recapitalization allows AirWaves’ to gain institutional support, and “deep pockets” to fund Growth

Overview

  • Air Waves is a leading provider of on demand apparel fulfillment for the ecommerce channel.
  • The company has developed a proprietary process for managing the complexity of “mass customization” of decorating apparel in single unit quantities.
  • The current owners bought Airwaves in 2009. By expanding offerings, investing in technology, and developing new processes Air Waves revenues grew by 500%
  • Owners desired partial liquidity, a strong Board of Directors and Funding to continue their sales growth of nearly 30 % per year.

 

 

Results

  • Recapitalization with CCCM and its affiliates completed in October 2016
  • Owners achieved their liquidity goals from the transaction
  • Management Team retains a significant minority stake with representation on the Company’s expanded Board of Directors
  • Management continues to run the Company with same leadership roles
  • Substantial investments planned in new personnel
  • Now executing their strategic plan to grow revenues by 5x through customer diversification, organic growth, and acquisitions

 

 

 

16May/16

Transnational Foods, Inc. announces Brett Barcelona as Executive Vice President

MIAMI–(BUSINESS WIRE)–Transnational Foods, Inc. (www.transnationalfoods.com), a leading marketer of private label grocery products, announced today that Brett Barcelona has joined the firm as Executive Vice President, New Business to further develop the company’s growing portfolio of regional and national customers. Brett comes with a wealth of industry experience, having spent the last 23 years at Daymon Worldwide. During his time at Daymon, Brett held various executive level positions working with major retailers and private brand suppliers. Most recently, Brett was President and General Manager of Daymon’s retail services business units.

Brett will continue to drive the success Transnational Foods has had in providing great products to top retail companies throughout America. “I am excited to join Transnational Foods to begin working with a highly motivated team and to grow our relationships and business with current and new customers. I am fortunate to be joining such a respected company that prides itself on being the most reliable global sourcing company that provides grocery stores across the United States with cost competitive and superior quality products.”

“Brett’s wealth of experience and industry knowledge has made him a key addition to our organization,” said Marcelo Young, CEO of Transnational Foods. “We view Brett’s appointment as a sign of our commitment to being the leading globally-sourced foods provider in our industry. Our new innovative products and increasing demand from our customers led us to look for an addition to our team who fits in with our ethos of innovation and exceptional service. We are thrilled to have Brett join us and I am confident that he will play a key role in providing and implementing high quality solutions for our customers.”

About Transnational Foods, Inc.

Transnational Foods, Inc. offers leading supermarkets, wholesalers, dollar stores, convenience stores and distributors a wide range of products, either under its well-known “Pampa” brand, its premium brand “della Natura” or private brands. Transnational Foods sources more than 350 SKUs manufactured in 50 production facilities located in 25 countries, all of which are coordinated from procurement offices located in South America and Asia. Additional information is at www.transnationalfoods.com.

Contact

Transnational Foods, Inc.
Brett Barcelona, 305-365-9652 Ext 228
bbarcelona@tfinc.com.

Source: Business Wire

28Jan/16

Odyssey Investment Partners Completes Acquisition of Integro

New York, November 2, 2015

Odyssey Investment Partners, LLC today announced that an affiliate has completed its acquisition of Integro Ltd., an international insurance brokerage and risk management firm. Financial details of the investment were not disclosed.

Founded in 2005, Integro has evolved to become a leading specialty insurance brokerage firm with a significant global presence. In recent years, Integro has been actively building its specialty areas, including Aviation; Benefits Consulting; Entertainment; Financial Institutions; Healthcare; Marine/Energy; Professional Services;  Real Estate/Construction; Reinsurance; Retail/Consumer Services; and Trade & Logistics/Transportation in North America, and globally.

Integro has catapulted to the eighth largest private broker in the United States in terms of property/casualty written premium, according to Insurance Journal. Integro serves clients in over 125 countries from more than 40 offices across the globe.

Jeffrey McKibben, a Managing Principal of Odyssey Investment Partners, said, “We are excited to complete this transaction and to build on Integro’s exceptional success to date in the brokerage and risk management sectors. We look forward to our new partnership with the Integro management team and to providing the resources and support needed to achieve continued success.”

The Integro management team led by William Goldstein, John Sutton, Toby Humphreys and Marc Kunney remains in place, and certain members of the management team and other employees remain shareholders in the company.

Mr. Goldstein, previously President of Integro, has been named Chief Executive Officer. He said, “We are thrilled to be aligning with Odyssey, an active partner that will add value in so many initiatives, including refining strategic direction, accelerating acquisitions, improving financing, and supporting our deep commitment to innovation and client service.”

Sandler O’Neill + Partners, L.P. served as financial advisor and Latham & Watkins LLP served as legal counsel to Odyssey in the transaction. Evercore served as financial advisor and Cahill, Gordon & Reindel, and Proskauer Rose LLP served as legal counsel to Integro.

About Integro Integro is an insurance brokerage and risk management firm. Clients credit Integro’s superior technical abilities and creative, collaborative work style for securing superior program results and pricing. The firm’s acknowledged capabilities in brokerage, risk analytics and claims are rewriting industry standards for service and quality. Launched in 2005, Integro and its family of specialty insurance and reinsurance companies, some having served clients for more than 150 years, operate from offices in the United States, Canada, Bermuda and the United Kingdom. Its U.S. headquarters is located at 1 State Street Plaza, 9th Floor, New York, NY 10004. 877.688.8701. www.integrogroup.com

About Odyssey Investment Partners Odyssey Investment Partners, LLC, with offices in New York and Los Angeles, is a leading private equity investment firm with a 20+ year history of partnering with skilled managers to transform middle-market companies into more efficient and diversified businesses with strong growth profiles. Odyssey makes majority controlled investments in industries with a long-term positive outlook and favorable secular trends. For further information about Odyssey Investment Partners, LLC, please visit www.odysseyinvestment.com.

Contact

For Integro:
Betsy Van Alstyne
Integro
(973) 820-1469

For Odyssey Investment Partners:
Mark Semer
Kekst and Company
(212) 521-4800

www.integrogroup.com