Fundless sponsor Knox Capital partners with operators, private investors

“I consider myself a private equity refugee,” said Alex Gregor, founder and principal of fundless sponsor Knox Capital.

“I left a traditional institutional firm with the intent to buy businesses on my own, deliberately without a fund, and really trying to focus on networking with operators.”

Before going solo in 2013, Gregor was vice president at Chicago buyout shop Pfingsten Partners, which invests in middle-market companies in manufacturing, distribution and business services.

“My role initially evolved from supporting a transaction, as an entry-level guy, to leading my own sourcing, execution of deals, and operational insight in later years,” Gregor said.

“I definitely believe in the operationally focused model that Pfingsten was founded on,” he said. But when it came to sourcing, “using operators was hard, as the deal flow was ultimately very opportunistic or idiosyncratic.”

This led Gregor to consider applying the operational model outside an institutional fund, without artificial time constraints.

Traditional PE is “much more about the velocity of the capital, how fast you can get it out and back,” Gregor said. That’s not necessarily conducive to deliberate, focused sourcing.

“I wanted to have more flexible and permanent capital,” he said. “That could be family offices [or] direct investment arms of financial-services companies.”

Knox Capital’s first transaction, an investment in industrial-pump maker Stancor, was backed by family offices Longview Asset Management and Bratenahl Capital Partners.

Investment firm Tuckerman Capital participated in Gregor’s second deal, the creation of industrial-gas-turbine platform TRS Global.

More recently, Knox recapitalized eDiscovery and forensics services provider HaystackID, partnering with investors including Maranon Capital. (TCF Capital provided senior-debt financing.)

In April, with additional investments from management, Maranon and ORIX Mezzanine & Private Equity, Knox created platform company Haystack Holdings. Mike Bryant, an experienced executive in the legal services industry, is Knox’s operating adviser on the platform.

Knox completed two add-ons sourced through Bryant’s industry connections, Inspired Review and Envision Discovery.

“My background is 100 percent operations, I’ve never been in private equity before,” said Bryant, now a shareholder and board member of Haystack.

Having sold a business he co-founded and led, knowledge process outsourcing firm nSource, Bryant “was looking for a platform to invest in” and was introduced to Haystack through a relationship with the founder, Kevin Glass.

Strategic acquirers were interested but Glass “didn’t want to go through an exhaustive process,” which was “music to my ears,” Gregor said.

“What we liked about the company is that there’s a lot of consolidation in the marketplace, which has left behind a customer segment that likes having a more high-touch, consultative approach,” he explained.

“Investors like the fact that I’ve got guys like Mike on the bench and they’re active in these businesses.”

Bryant added that Haystack would likely pursue more add-ons.

“The market is much more progressive than it used to be relative to fundless sponsors and deals,” Gregor said.

“You’re starting to see fundless guys like me even be competitive and win processes. The ultimate message is this will continue to happen, given the generational transition happening in PE.”

Action Item: Email Alex Gregor at aeg@knox-cap.com.