5 questions with Mark Hanson

Just before the holiday break last month, Mark Hanson was promoted to managing director of Genstar Capital, a middle market private equity firm that invests in tech, life sciences and health care services. The San Francisco-based firm last year closed Genstar V at $1.55 billion. Hanson joined Genstar in 2006 as an operating partner focused on software and software services. Joshua Payne, senior editor of Buyouts (an affiliated publication of PE Week) caught up with the PE pro to get his views on the market in 2008.

Q: What does the promotion mean for you as far as your role at the firm?A: As operating partner, I was more an advisor. The role of an operating partner at Genstar, while fairly intense, allows you to help identify potential investments and work with portfolio companies as an advisory to Genstar Capital. The managing director is a role that is tied to Genstar V. So I’m making a long-term commitment to Genstar Capital as a firm.

Q: Prior to Genstar, you worked at software companies for more than two decades. Does your appointment signal Genstar’s intent to grow its portfolio of software companies?A: I was appointed managing director to build the software and software services focus as part of Genstar V and future funds. Genstar had previously made investments in this category, but I will further build the software and software services focus as part of Genstar V and future funds. The really is to make software and software services a meaningful part of the investment strategy of Genstar Capital.

Q: What makes software companies appealing targets for buyout shops?A: Software and software services companies have very strong cash flows and very strong recurring revenue bases. The software companies that have developed a recurring business model, sometimes called “software as a service,” where the companies have one or more annuity streams that are one- to three-year contracts with their customers have very strong, predictable cash flows which make these types of companies very interesting candidates to buyout firms.

Q: What are the pitfalls to avoid when investing in software companies?A: This is a category in which experience matters. You want to identify software companies that are solving a real business problem with a track record. Ideally, they have been solving that problem for over a decade, so they have a sizable customer base. The biggest pitfall to watch out for is making sure to avoid the latest fad in technology, and not just invest in the latest cool or technologically advanced development. It’s key to make sure you’re involved with a technology player that’s solving real business problems and delivering real business value to its customers.

Q: Last month, Genstar finalized the acquisition of TravelCLICK, which provides Internet and marketing services for hotels. What sparked your interest in that company?A: TravelCLICK has a strong brand in the hospitality sector, serving approximately 12,000 hotels that are four- or five-star, focused more on luxury or high-end hotels. The company has a strong recurring revenue base. And we believe that with their customer base and brand reputation, the company makes a really good platform investment in the hospitality software and software services sector where we can work with the management team to grow TravelCLICK to become a more dominant player.