When middle-market GPs want to avoid paying auction prices, they sometimes go into the wild to find deals. Hunting down target companies may be more challenging than diving into an expensive M&A process run by an investment banker. But it also may be more rewarding.
To find their own deals, firms work trade shows and make the rounds at gatherings and events run by, for example, the Association for Corporate Growth. These and other efforts can mean the difference between paying 10x EBITDA in an auction or 6x to 7x for a hidden gem.
Trivest Partners casts a wide net to find purchase-price multiples well within the single-digit EBITDA range. The Coral Gables, Florida, shop draws on what it estimates is a universe of at least 10,000 business owners, deal generators and other facilitators in North America. Trivest typically works with a database of lawyers, consultants, headhunters, business brokers, accountants and others.
To sweeten the deal for intermediaries, Trivest offers them three-year leases on Mercedes-Benz S-Class cars if they tip off the firm to a founder or family-owned investment. The car offer comes on top of the industry-standard buyside fee of 1 percent of the purchase price plus $100,000 for deals that close.
Todd Jerles, named chief operating officer at the firm as of Jan. 1, said Trivest has provided 15-plus Mercedes cars over the years.
The firm worked to identify the most common places where typical buyout deals come off the tracks.
It set up a program called “Just Say No” to what it sees as the pain points in a deal, Jerles said. While some GPs may require sellers to reinvest as much as 30 percent of a company, Trivest leaves it to the owners to decide whether they want to hold a stake. About 90 percent of owners choose to do so in Trivest deals, Jerles said.
In addition, some GPs demand escrow payments of 5 percent to 15 percent of the purchase price. Trivest instead uses a type of deal insurance called representations and warranties — also known as M&A insurance — to cover potential liabilities.
This means owners do not face escrow holdbacks that could last years if a dispute arises.
When owners opt to buy a stake in their company in a control buyout, Trivest doesn’t issue them common stock while keeping preferred for the firm. Both the GP and seller hold common stock and occupy the same space in the capital structure.
The firm also avoids retrading a company by trying to reset the sale price from the amount in the letter of intent. With Trivest, every signed purchase agreement since 2000 has shown the same price as the LOI did. “There hasn’t been a penny difference,” Jerles said.
Trivest also offers a more conservative capital structure, using only senior debt in the acquired company, and no riskier subordinated debt.
To be sure, these and other of the firm’s differentiators may not always work if sellers have their hearts set on the biggest potential purchase price for their company. “We’re not going to be the highest price,” Jerles said. “We’ll pay a fair price.”
Asked about a deal that Trivest uses as a template for its acquisitions, Jerles picked National Carwash Solutions, which the firm acquired in 2000 when the company was called Ryko Manufacturing.
Trivest grew the car-wash-equipment maker by acquiring MacNeil and expanding it into service contracts before selling National Carwash Solutions to AEA Investors for a significant return earlier this year. Jerles declined to provide further details.
On the acquisition front within the past year, Trivest invested an undisclosed sum in Aerospace Resource Group, an aftermarket commercial, cargo and military aircraft maintenance and repair provider. It also invested in Vohra Wound Physicians Management, a group focusing on wound-care services.
The transactions marked the first two from its Trivest Growth Investment Fund, the firm’s first growth equity pool, which closed on $225 million in 2016.
Among its other buyouts, Trivest recapitalized Dauenhauer Plumbing, a provider of maintenance and new installation plumbing services in Kentucky. The deal marked its 10th platform company from Trivest Fund V.
In September the firm closed Trivest Fund VI with commitments of $600 million. Fund VI marks Trivest’s 12th overall fund and seventh institutional fund.
Looking ahead, the firm continues to steer toward transactions strictly with founder or family-owned businesses while investing for its LP pool. Its investor base includes corporate and public pensions, endowments, insurers, funds-of-funds, individuals and family offices.
But it may be hard to find Trivest at your garden-variety banker auction.