Huron Capital’s Jim Mahoney: Succession about ‘staying true to our roots’

Huron Capital Partners, which is investing from its 2017-vintage flagship Fund V, in February announced implementation of a succession plan.

The event saw Jim Mahoney promoted to managing partner alongside Brian Demkowicz. Demkowicz, who co-founded Huron in 1999, remains involved in the firm’s leadership, including overseeing investment and fundraising. He also took on the new role of chairman.

Mahoney spoke with Buyouts about the succession and how it prepares the Detroit private equity firm for the years ahead. He also discussed Huron’s operationally focused lower mid-market buyout strategy and its recently accelerated deal pace.

What were the main elements of Huron’s succession plan?

Huron’s succession was about adding to the leadership team and ensuring continuity. I’m now managing day-to-day operations, but Brian Demkowicz is not stepping back. His new role will free him up to think about strategy, value creation and the firm’s next five years and beyond.

We launched the succession in 2018, believing a long lead-time was important to the plan’s success. We didn’t want to surprise people. It was a brick-by-brick process – very deliberate and very methodical. We also brought limited partners into the conversation early. They reacted positively.

Huron was established by Brian and [senior partners] Mike Beauregard and Peter Mogk and has raised six funds over 22 years. Not all private equity firms get to this point. For us, the absolute commitment of senior leadership was key to the succession. It is one thing to talk about it and another to actively pave the way for change.

I think the two-and-half-year process was quite fluid. I gradually took on new responsibilities, so by the time I was appointed managing partner it was really a matter of the title catching up to the reality.

Was priority given to bringing junior team members up through the ranks?

Yes. As part of our succession plan, we aimed to perpetuate Huron by putting certain team members in place and introducing next generations of talent.

We are looking to hire at the junior levels. We feel this will create the foundation and bandwidth to allow our younger investment professionals to move up in the organization. If you don’t do things like that, junior people leave. You hear a lot of the horror stories about succession in private equity firms – about fights over issues like economics.

Did the succession result in a change in Huron’s strategy?

No. Huron’s succession plan was about staying true to our roots. We will continue with our flagship investment strategy because it has been the source of our success.

Huron is usually the first institutional investor in the lower mid-market companies [revenue of up to $200 million, EBITDA of more than $8 million] we back. Our goal is to professionalize them. The bulk of our businesses are owned by entrepreneurs, families and founders. They are selective about their investment partners as they want to protect their legacies.

We prefer complex situations, such as carve-outs, family successions and recapitalizations, as well as opportunities for creating a solution that is bespoke.

A key part of our strategy is a buy-and-build model targeted to fragmented markets [in niche segments within the business services, consumer products and services and specialty industrials sectors], which allows us to focus on both organic and inorganic growth. Many of Huron’s portfolio companies are prolific acquirers.

One component of the model is Huron’s ExecFactor, an executive-led market entry program. We underwrite a team and market plan as a way to pursue buy-and-build opportunities in targeted sectors and sub-sectors.

Huron’s flagship strategy emphasizes control investing. We also have a flex-equity strategy that has the ability to make non-control investments in smaller companies [EBITDA of below $8 million].

Huron often picks a key secular trend and marries that with our strategy. A good example is our latest platform investment, Sunland Asphalt [a provider of asphalt and paving services], which we acquired in January. We saw an opportunity in aging infrastructure, especially in markets where there is major population growth. We looked at a number of prospects and chose Sunland.

Most of Sunland’s work is repair and maintenance, which generates highly recurring revenue. Its space is also quite fragmented. We identified add-on candidates prior to investing.

[Sunland this month closed its first add-on deal, buying ACE Asphalt, an asphalt and concrete maintenance business.]

Has Huron been active during the health crisis?

We have been very busy. In fact, 2020 was the second-most active year in Huron’s history. It followed record deal activity in 2019. Last year, we completed 24 transactions across eight platform companies. This includes a new platform investment, Lab Crafters [a maker of laboratory casework, furniture systems and fume hoods].

Last year was more of a buying opportunity than a selling opportunity for us. The covid-19 lockdown created many acquisition opportunities. I think a lot of lifestyle businesses were doing well when the economy was strong, but then covid-19 came along and impacted people’s thinking about retirement – about their time horizons. This accelerated successions.

Three of our portfolio companies, Albireo Energy [a building automation and energy solutions provider], High Street Insurance Partners [an insurance brokerage] and Sciens Building Solutions [a fire detection and security services provider], accounted for 90 percent of 2020’s add-on acquisitions.

The factors that made last year a good deal environment for us are still in play. Continuing uncertainty breeds opportunity. So, I think 2021 could be another busy year for Huron.

What attracted you to a career in private equity?

I joined Huron in 2007 after working with Conway MacKenzie and Robert W. Baird. I sometimes viewed the people on the other side of the deal table and thought what they were doing seemed rewarding. From an execution standpoint, my skill sets were transferable to private equity.

Private equity was also attractive to me because I like working with businesses and helping them grow and create value. Huron gave me this opportunity at the time of Fund III’s launch.

Since then, I have spent time in various sectors but mostly in business services, including facility, infrastructure and utility services. I was Huron’s point man on the Sunland Asphalt deal.

(This story was updated to correct the vintage year for Huron Capital Partners’ Fund V.)