June 7, 2013
Interviewed by: David Snow
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Upgrading Lower-Middle Market Companies

Randy Mehl of Baird Capital discusses what it takes to upgrade companies in the lower-middle market — and how to execute smooth management transitions at these smaller companies.

Randy Mehl of Baird Capital discusses what it takes to upgrade companies in the lower-middle market — and how to execute smooth management transitions at these smaller companies.

Upgrading a Lower-Middle Market Company

A Privcap Conversation with Randy Mehl of Baird Capital

What predominantly characterizes the lower-middle market companies you have looked at?

Mehl:               In the lower mid-market, we look at a lot of family run businesses, and they haven’t made the investments in processes and in people to expand globally to optimize their operation. And almost every single time we have to upgrade management. In addition to that we will create an ecosystem for the management with strong board members who also have expertise and can make the pie bigger.

How do you view the management transition process at these smaller companies?

We have a stable of operating talent, and we will, in almost every case, back a leader to build a team. We’re looking at lower mid-market companies, and they’re always going to require upgrades to the management team to processes. And so we need to have the team built. It’s always a transition. So when you’re bringing new management to the table, not everyone at the company is going to appreciate that.

Do you have an institutionalized function in place dedicated to management transition?

To help smooth the transition, we have a portfolio operations team. That team will help us create a 100-day plan. They’ll put some of the processes in on day one that gives visibility to the management team as to what’s happening, how their lives, how their roles are changing, and we found that to be very successful, in terms of smoothing the operation.

How does Baird’s global scale translate to the lower-middle market segment?

Regardless of size, almost every company is influenced by the global environment, either competitively, or it’s a growth opportunity. And so being global, being in Asia, being in Europe, in the US, we immediately have the advantage of understanding what we’re coming into and what the market factors are.

What are the dynamics in the U.S. healthcare sector driving your healthcare investment decisions?

So health reform is on everybody’s radar. It’s driving coordinated care, consumerism and consolidation. If you think about the US health system, the payer system that we have in place, with Medicare, Medicaid, private insurance and patient pay, it’s very complex. The health care systems and the health insurance companies are going to have to better become-, you know, they’re going to have to become more like competitive consumer-oriented businesses.

What is an example of Baird’s healthcare strategy executed successfully?

We were talking to a group of doctors about what bothered them the most about their job, and everything seemed to go to the billing. Either their billing provider, or they did it themselves, weren’t able to collect from insurance companies, from patients, took too long to get the bills paid, always concerned about compliance. And so we decided to think about putting together a strategy and producing or creating an outsourcing company that would solve a lot of those problems. We did a deep dive in the medical revenue cycle management area. We then blitz the market and talked to consultants, talked to intermediaries about what was out there and the types of businesses that were there. And, ultimately, through one of the consultants, we were introduced to a family-owned business called Med Data. We acquired a patient pay business, which allowed the company to better communicate and collect from patients. That part of the payer mix continues to grow. It was important to be able to do that. And we have now grown the business from that $16 million to about $60 million in revenue.

How has human capital services become an attractive area for deal flow?

The workforce, especially in the US is not growing at a very fast pace, and workers are becoming more demanding about how they do their job. So the ability for companies to source talent, to assess, evaluate talent and to deploy that talent has become very critical. From those trends, there’s a couple big themes that we’re pursuing today. One is the virtual workforce. How do you enable people to work from their homes, work remotely? And so there’s the whole virtual workforce enablement. Another trend is data-driven assessments. So people come in the door, we have more data today and more analytical abilities or capabilities to figure out whether they’re going to be successful, whether they’re going to be a risk, where are they going to be a risk? And so you can manage the workforce more effectively.


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