January 7, 2013
Interviewed by: David Snow
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The Huntsman Gay Way

Gary Crittenden, Managing Partner of Huntsman Gay Global Capital, discusses what makes his firm unique in its approach to partnering with middle-market entrepreneurs. He describes the importance of the personal connections that his firm’s partners have in sourcing good opportunities, and shares the example of an investment in MaMa Rosa’s Pizza as an instance in which a business’ scalability was unlocked with the help of Huntsman Gay. Crittenden also discusses the recent departure from the firm of co-founder Robert Gay as well as the transitioning role of another co-founder, Jon Huntsman.

Gary Crittenden, Managing Partner of Huntsman Gay Global Capital, discusses what makes his firm unique in its approach to partnering with middle-market entrepreneurs. He describes the importance of the personal connections that his firm’s partners have in sourcing good opportunities, and shares the example of an investment in MaMa Rosa’s Pizza as an instance in which a business’ scalability was unlocked with the help of Huntsman Gay. Crittenden also discusses the recent departure from the firm of co-founder Robert Gay as well as the transitioning role of another co-founder, Jon Huntsman.

Privcap: What distinguishes Huntsman Gay?

 Gary Crittenden, Huntsman Gay Global Capital: Huntsman Gay has an approach to private equity that is a little different, I think, than many firms in our same market size. We’re a billion-dollar fund, and the size company that we target is typically between $25 million in EBITDA and $75 million in EBITDA.

But almost every deal that we have done since our inception came as a result of some sort of personal connection that one of us had with the firm that we were talking to. And we have a couple of principles. We don’t buy broken management teams. We don’t buy broken businesses. We buy great businesses that we think have leveragable business models that can be build in something terrific over time.

By working with the management team before we acquire the firm—that is, we don’t go through a bid process typically, we actually work with the owners of the firm in a way that we develop kind of a joint view of what the eventual potential of that firm might be—really allows us, I think, to have real confidence in the working relationship we’re going to have with that management team, our joint kind of shared view of what the future looks like for the business, and—so far, at least—the outcomes that we have been able to have together with those management teams. So that focus on proprietary transactions with management teams that we have great confidence in, that we can build the platform around, is really the thing that I think has differentiated our business.

 

Privcap: How do you convince a healthy growing company that it should take capital from your firm?

 

Crittenden: It’s interesting. I think the nature of the way capital markets have changed a little bit has created this opportunity. So if you go back maybe 15 years, the ability of a smaller firm to do an IPO was greater than it is today. You know, with all the regulatory and compliance requirements that a small firm has, it is just really difficult for a small firm, in many cases, to do an IPO. And then, after they do an IPO, they don’t have enough float to trade properly.

So many of those firms which I think 15 years or so ago would have looked to the IPO market as being the place that they would want to go to provide a liquidity event for their family while still allowing their family to remain kind of in charge of the business, those options really are much more limited today than they were before.

So we find that there are family businesses in exactly that situation. So you’ve got a founder who might have started the business 20 years ago, has done a great job in growing the business over time. In theory he could do an IPO. But he realizes what the compliance demands of that is going to be. But he wants to stay running the business, and wants to be part of the business, and wants to reinvest in the business, wants his future to be a part of it, but is looking around for someone who is a partner that kind of shares that vision. So he really doesn’t want to sell out. He wants to remain in, as I said, CEO and be part of the business going forward. So that type of opportunity is the one that really creates the value, the opportunity for us.

 

Privcap: What are the most important attributes that you look for in a potential investment?

 Crittenden: The key question for us is the scalability of the business. So if that’s your thesis—that you’re going to take a business with a scalable management team and a scalable business—that has to be at the core. And let me just give you a couple of examples. We bought a pizza business in Sydney, Ohio, called Mama Rose’s. They make fresh pizzas that go in the meat departments of grocery stores.

When we bought the business, the majority of the business was kind of a co-pack business, kind of a private-label-type business. And our view was that we could take the relatively small, branded business that they had and—working with the management team, a manager that came from the outside with us to acquire this business—we could, over time, build a business that was overwhelmingly branded.

So the total size of the business today is about the same as it was when we bought it. But the mix of the business has changed dramatically, from being kind of a private-label business to now the majority is a branded business. So the ability to make a dramatic, strategic change like that with a business is what we’re focused on.

Another example might be, we have a business called Power Holdings that’s headquartered in the southeastern part of the United States that maintains power lines all throughout the Southeast. And as you might guess, with Hurricane Sandy, they’ve been very active up here in the Northeast as well recently. But we had a belief that we could buy a relatively small family business located in Beaumont, Texas, and Alexander at Louisiana, and we could, over time, with the right acquisitions, build it into a superregional player in that industry. And with that platform, we could serve a greater array of clients, because we’d have more feet on the street than you would have if you just had one small regional company.

Let me give you an example. If you have a storm in North Carolina, the utility in North Carolina wants to know that he can draw on resources in Texas to come up and solve the problem with that storm. So gaining scale in that business is important. So we, with the management team, had a strategic vision of what the business could become. And fortunately, over the last few years, working together, we’ve been able to build it into that kind of an enterprise.

Privcap: How often do you find that a founder has a very different sense of the company’s scalability than does your firm?

 Crittenden: When we first start working together, sometimes it is different. Sometimes we see things that might be beyond what they can actually think is possible, because they’ve had limited resources; they haven’t had that kind of strategic support that might be necessary to build a company. And I would say that in the case of Power Holdings that I just mentioned, that’s a good example of that kind of a business, where I think initially the management might not have thought they had the capability to build a business as large as they have.

But as that business has grown incrementally over time, their confidence in their ability to do it has increased as well. And the systems that you have to develop as you build a bigger business have to change. They can’t be the same as they were in the beginning. But the important thing is that we had a common vision with the management that we had built over time about the trajectory this business could be on—and that has stayed consistent. And as we have put the infrastructure in place and built the size of the team, we’ve been able to grow that business nicely.

 

Privcap: Huntsman Gay cofounder Robert Gay recently announced that his role at the firm would change. How will this transition affect Huntsman Gay?

Crittenden: Bob Gay, who was one of our founders, left the firm to do full-time volunteer service for the LDS Church out in Salt Lake City. So that was a big change for us. And that’s a process that we’ve had to manage through. Bob has 25 years of very successful history in private equity and is, I think, one of the most respected and best-known investors that there is. So Bob’s departure has been a big change for us. And that has required us to work very closely with our LPs to understand just how much groundwork we had laid to eventually transition the leadership of the firm, whether or not this had actually happened.

Bob was at the age where it was not likely he was going to have too many more swings at the ball before he retired anyway. And fortunately he was able to transition many of the contacts that he has—certainly the culture that he wanted to create in our firm. And that has allowed us, I think, to do just fine since Bob has departed. But we’ve worked hard to make sure that our limited partners have understood what that transition means for us.

Our expectation is we’re going to stay right where we are. We sort of like being in this space. We like the middle-market space. We like having the number of platform businesses that we have in the portfolio today. We think that’s a good number—eight, nine, ten platform businesses that we’re working with at any point in time. And as we kind of play forward our own strategic plan, that is sort of where we’d like to be.

Privcap: Will the role of cofounder Jon Huntsman change going forward?

Crittenden: Jon, I think his role, for the fund we’re in today, will continue just as it has been. Jon, as you might guess, has an unbelievable background that provides a wealth of contacts around the world. And he’s been very helpful in the year since we started the fund in making introductions in key circumstances, in bringing to bear resources as we have evaluated business deals.

John has been a great mentor and adviser to all of us. And also John has set an incredible example of philanthropy. And that’s something that’s important to us in our firm. And John sort of sets the tone around that. So I would expect that to continue—that as we successfully manage this fund, we’re going to find John engaged in helping us make the connections that we need to make in order to be successful.

 

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