What PE Firms Look For In Companies, Interview With Philip Alphonse, Senior Partner At Vistria

Alphonse describes how private equity firms look for investment opportunities and how they help companies succeed.

PEOPLE

TAKEAWAYS

  1. Fit: There are various flavors of PE firms out there (e.g. $2-5mm EBITDA versus $5mm+). Get to know the type of PE firm you’re talking to and their parameters (e.g. profitability, company stage, industry). Interview the PE firms to understand the “box” the firm plays in.
  2. References: Make your calls and do your reference checks, just like you would hiring someone important. You’re essentially getting married by forming this new partnership, so you want to get clarity on your partner. Talk to our CEOs and operating partners to understand the qualitative aspects.
  3. Learn: Always keep learning. We love learning from the different approaches our CEOs take.

TIMELINE

  • 01:15 – Overview of Vistria. Private Equity firm, typically looking for business with $10-50mm EBITDA. Focused on three primary verticals: education, financial services and healthcare. We aspire to take a more strategic and partnership approach in how we invest; we get excited about investments where our network is uniquely suited to upgrade and support the business. How we can move the dial operationally, resource partners in the space (e.g. Blue Cross).
  • 03:15 – What is a PE Firm? It’s largely called “alternatives” — it’s a universe of investors looking to generate higher ROI, using vehicles such as PE, VCs, Hedge funds, etc. What we do differently is we invest in later stages of a company — we are not early stage through growth capital (e.g. seed through series B-D). Once a company is more seasoned/mature, then it has a different set of buyers. 
  • 04:45 – When should a “mature startup” consider a PE firm (versus VC)? It’s determined by the stage of the company; typically earlier stage companies aren’t profitable. We pull certain levers that require companies to have a positive EBIDTA and cash flow; hence we have different tools & drivers from VCs. Another driver is a matter of control; typically companies look to PE firms for partial/full liquidity events versus with VCs, it’s a minority investment. 
  • 06:40 – How active do you get in the operations? We’re fairly active but it’s a balancing act since we have to support the operating team and system but also give the CEO and management team space, especially if most things are working. Some businesses need a lot more of a lift (e.g. CEO change, improve sales productivity) but when we jump in, it’s in alignment with the management team. 
  • 08:15 – Can you share a story of how you worked with a company? As an investor, you look for tailwinds. One of these is in education, around workforce training and development since there’s a massive market (pre-pandemic) of working adults that need skills training. We looked at employees-to-opportunities matching or straight up skills training. We invested in a company called Penn Foster; it was a largely B2C play but we felt B2B would make for a powerful enterprise channel. We were helpful in supporting that business and getting them into several channels (e.g. hospitality), built relationships with staffing companies and helped upgrade their technology infrastructure. We bought a venture backed system and brought that in, which worked quite well — we doubled the EBITDA and had a great exit.
  • 13:58 – Are you always networking for talent? There’s a perception out there that PE firm employees only network all the time. When we identify a space, we spend a lot of time getting to know all the CEOs and relevant companies in that vertical, to understand how the whole ecosystem works, validate what we see in the market versus what’s happening in reality, so networking is very important. 
  • 15:40 – Takeaways (see above)
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