GP Profile: Lariat Partners aims for a kinder, gentler PE approach

The founders of Lariat Partners don’t want to act like jerks.

That may not sound like an audacious goal. It’s even a little crass, but to portfolio company CEOs like Kenny DesOrmeaux at Ecoserv, it’s Lariat’s most vital and defining characteristic.

“Their goal is, ‘We don’t want to suck,’ and that’s the coolest thing about the firm. They want to be part of these businesses,” said DesOrmeaux, who has several acquaintances who “hate their private equity partners.”

“I just got lucky, man. That’s why I’m talking on the phone right now,” he said.

Creating a firm with more personal touch was part of why Jay Coughlon and Kevin Mitchell launched Lariat in early 2013, the co-founders told Buyouts.

According to Mitchell, Lariat’s approach to dealmaking and portfolio company management was designed to subvert the more impersonal, “transactional” approach taken by other firms.

“A real relationship to us is not a quarterly meeting. … It’s does this guy like me? Will he like me if he works with me?” Coughlon later told Buyouts. “We all spend more time at work than at home, and you might as well enjoy yourself.”

Debut vehicle

Enjoying oneself is nice, but it doesn’t pay the bills. Shortly after launching Lariat, Coughlon and Mitchell set about raising the firm’s debut vehicle. Lariat Partners Fund I closed on $118 million in July 2014.

Lariat used Fund I to acquire lower-mid-market businesses that sell consumable products with recurring revenue streams. The firm specializes in fragmented industries like agriculture, or energy and environmental services, where there’s more room to buy and merge smaller businesses.

Unlike most buyout funds, which have a five-year window for buying companies, Lariat shortened Fund I’s investment period to three years. The shorter time horizon corresponded with a smaller portfolio. Rather than using Fund I to buy eight to 10 businesses, Coughlon and Mitchell marketed Fund I as a vehicle for four or five platform investments.

“Good news for us, we’ve done exactly what we said we’d do,” Mitchell said. Lariat Partners Fund I closed its fifth and final platform investment, agricultural products manufacturer Willowood USA, in May. The firm is holding some Fund I capital in reserve for bolt-on acquisitions.

As is the case with many first-time funds, Mitchell noted the hurdles Lariat faced in attracting commitments from institutional limited partners. While the partners worked on deals together prior to Lariat (Coughlon also invested in companies Mitchell acquired as an independent sponsor), Fund I marks their first outing under the firm’s banner.

Acquiring a smaller number of companies in a shorter time period through their “half fund,” as Mitchell refers to Fund I, should make it easier to market a full-sized $250 million to $300 million fund in the future.

Coughlon’s background will become even more of an asset once the firm makes that leap.

While Mitchell spent the decade prior to Lariat working as an independent sponsor, Coughlon was climbing up the ranks at KRG Capital Partners, where he eventually was named managing director.

KRG grew fourfold during Coughlon’s ascent at the firm. The firm went from operating a $450 million fund to a $1.96 billion fund. And though Lariat has no plans to raise $1-billion-plus funds, Coughlon’s experience pairs institutional know-how with Mitchell’s softer touch with business owners and entrepreneurs.

“Jay came from a business that was trying to scale. So they had to implement predictable processes in order to replicate their success, and they did,” Mitchell said. As an independent sponsor, “I was competing with committed-capital private equity firms out there and winning deals without a fund. There were reasons I was able to do that, but it wasn’t formality and process.”

Flexible processes

The flexibility of Lariat’s processes extends to its management of individual portfolio companies, DesOrmeaux told Buyouts. The firm helps its company managers produce a single-page front-and-back game plan outlining goals and initiatives — it’s vaguely reminiscent of a football coach’s play chart — which is then revised quarterly and annually.

The process kept Ecoserv “on point” as it navigated the rapid decline in oil and gas prices, DesOrmeaux said. Falling prices had a severe impact on Ecoserv’s customer base in the exploration and production sector.

Lariat guided the company through a diversification its product-and-service line prior to the downturn, which helped the company “stay strong” as roughly 75 percent of the company’s competitors went out of business, according to DesOrmeaux.

“When oil and gas fell, and business fell, [by] 30, 40 or 50 percent, I didn’t hear “What the hell are you guys doing?’” DesOrmeaux said. Instead, “it was, ‘What are we doing? What can we doing to fix this situation?’”

“When I need them, they’re there. And that’s definitely not the way I understand these other private equity folks [to be],” he added.

Action Item: Lariat Partners website: lariatpartners.net

Photo of Kevin Mitchell (left) and Jay Coughlon, co-founders of Lariat Partners, courtesy of the firm.