November 10, 2017
Interviewed by: Privcap
Video Clip
Login to view full video

Terrence Mullen: Leveraging Innovation, Creating Value

The co-founder of Arsenal Capital surveys a “frothy” market but explains his sense of excitement about investing behind innovative companies in the specialty industrial and healthcare space.

 

The co-founder of Arsenal Capital surveys a “frothy” market but explains his sense of excitement about investing behind innovative companies in the specialty industrial and healthcare space.

 

Terrence Mullen: Leveraging Innovation, Creating Value

Don Lipari, RSM: Today, we’re speaking with Terrence Mullen, co-founder and partner at Arsenal Capital Partners. Welcome, Terry.

Terrence Mullen, Arsenal Capital Partners:
Thank you, great to be here.

Lipari: Congratulations on fund four. You crossed the $1-billion mark, $1.3 billion. You closed in ’16. My guess, based on your continuing to raise additional capital, is that you remain very bullish in the PE space.

Mullen: You know, Don, we’re extremely bullish about private equity overall. If you think about how public markets have evolved versus private markets—private markets and private equity specifically—[it’s] so much more skilled, attracting better talent, better resources. We specialize in technology and innovation and where these markets are going. We think we enjoy very significant advantages in the marketplace as an industry group in that we are continuing and will continue to grow and take market share from the public markets, which has its own challenges.

Lipari: Let’s springboard from that question, because I think we’re living in a very, very exciting time from an innovation and evolution perspective. Talk a little bit in the areas of focus of healthcare and specialty chemicals, specialty industrials. What do you see on the horizon that’s exciting to you?

Mullen: It is an exciting time. On the industrial side, the abundance of natural gas, oil and cheap feed stocks, combined with a tremendous amount of technology and innovation in chemicals and in material science, is creating many exciting growth opportunities. We just put their business together last year—sequenced four businesses to build what is the world leader in the next generation of polyurethane bedding. So, [that’s] what is supplying the bed-in-a-box phenomenon—or Casper and Tuft and Needle, and all these players. That business is growing at huge rates, because of a superior science and innovation, and a great consumer product.

We don’t do consumer, but we often provide the technology and materials that enable many companies to do that. Likewise, in healthcare, there’s a tremendous amount of innovation that’s gone in R&D and the whole pharmaceutical and bio-pharmaceutical development space. We think about things like gene therapy and immunotherapy—really exciting technologies. Our business focuses on helping those small companies, though, who may specialize in the workflow-management data-analytics decision-making for drug development and bringing drugs to market, helping all those pharmaceutical companies do everything better, faster, and cheaper.

So, [it’s] innovation-driving growth, but you also have to have a strong business that’s got a sufficient market-leading position, that we can complement those two and drive it.

Lipari: What causes you concerns? As it relates to the PE market, it’s pretty frothy, highly competitive or hyper-competitive.

Mullen: I can’t recall a year where investors didn’t say, “There’s too much money chasing too few deals.” So, you are seeing right now a very frothy pricing. It has been high, though, for five years. We should expect, at some point, [that] maybe it moderates, but maybe it doesn’t. It’s always a concern.

Our fund three is exceptional now. We’ve just sold, in the last 12 months, four of the businesses. We acquired those four businesses for a collective enterprise value of $700 million, Don. We’ve sold those for $2.7 billion, so we created $2 billion of enterprise value on four of our most recent exits in the last 12 months. So, that’s exciting. That’s better than we expected.

Register now to watch this video and access all content.

It's FREE!

  • CHOOSE YOUR NEWSLETTERS:
  • I agree to the Privcap terms of use and privacy policy
  • Already a subscriber? Sign In

  • This field is for validation purposes and should be left unchanged.