1. You were recently appointed a managing director of Genstar Capital LLC. What do you hope to achieve in your new role?
In my old role as operating partner I was more an advisor to the firm. The managing director is a role that is tied to
2. Prior to joining 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?
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 my role now as a managing director is to further build the software and software services focus as part of Genstar V and future funds. So, the goal really is to make software and software services a meaningful part of the investment strategy of Genstar Capital.
3. What characteristics of the sector make software companies appealing targets for buyout shops?
Software and software services firms have very strong cash flows and very strong recurring revenue bases as part of the maintenance revenues of these organizations. The software firms that have developed a recurring business model, sometimes called “software as a service,” where the software 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.
4. What are the pitfalls to be avoided when investing in software companies?
This is a category where experience really 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 the firms have a sizable customer base and their customers recognize the value proposition that is being delivered and you can work with the company to enhance the value that’s delivered to the customer. The biggest pitfall to watch out for is making sure to avoid the latest fad in technology, and not just investing 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.
5. Last month, Genstar finalized the acquisition of TravelCLICK, which provides Internet and marketing services for hotels. What sparked your interest in that company?
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 where they’re working closely with hotel owners, the general managers, and the revenue managers to drive increased occupancy or increased profitability for the hotels. They have a broad customer base with very low customer concentration. 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 in the hospitality sector.
Edited for clarity