Talking Top Quartile with Mark Dorman of Endeavour Capital

You’ve been with Endeavour for nearly 20 of its 26 years. What’s the firm’s mission today?

The firm has certainly evolved from the early days but our mission hasn’t changed. We are still committed to our goals of building a legacy firm, partnering with quality middle-market companies and managers in the Western U.S. and generating favorable risk-adjusted returns for our investors.

Do your successful deals have any common themes?

Without mentioning names, our five or so most successful investments involved companies that were in an expanding industry or market niche, had a leading or sizable market presence that they were able to leverage into attractive free cash flow margins and, most importantly, were led by an excellent management team.

Any key lessons from deals that didn’t perform up to expectations? Do you learn more from stuff that doesn’t work out in some ways?

As you would expect, our worst-performing investments had the opposite characteristics of the best-performing ones. These typically involved a negative industry dynamic, such as regulatory change or a new disruptive force, and a board and management team that was either slow or failed adapt to these changes. … As you would expect, an underperforming board and management team is typically the primary reason for underperforming investments.

Given high deal prices nowadays, firms have been allocating more resources to finding deals. How has your deal-sourcing practice evolved?  

Our deal sourcing strategy and activities have remained focused on developing relationships with what we view as the best companies, managers and service providers in the Western U.S. … We recently invested in a company that we had known for over 20 years.

Neuberger Berman’s Dyal Capital and others have moved to buy stakes in PE firms. Has the firm considered doing something similar?  

I think it can make sense for some firms and partners. Selling too big a stake can obviously impact a firm’s ability to retain senior level talent over the long term. We have not considered selling any interest in the firm to a third party.

What’s the most successful sector for Endeavour and are you participating in more types of businesses as the firm has grown?

Our successful transactions have been in a broad range of industries. The most represented industries would be food, consumer, transportation and logistics, and business services.

Are you looking at branching out into any new sectors?

We have no plans to add any new broad sectors to our proactive industry coverage efforts. We will continue to evaluate new subsectors within our key industries of manufacturing, food and consumer, healthcare, transportation/logistics and business services. Targeted subsectors are typically capitalizing on particular outsourcing, consumer and/or industry trends.

Any lessons from earlier in your career that help you now?

[Private equity] is an apprentice business [and you] learn something from every investment. The most important lessons relate to evaluating potential management teams and being able to risk-adjust the returns of potential investment opportunities.

What about succession planning as your senior leadership matures? 

We have been very deliberate about succession planning, given our focus on creating a legacy firm. This includes a mentoring process that involves every partner-track professional in the firm, a broad sharing of firm responsibilities and a merit-based system of compensation. We are proud that no senior level partner has ever left the firm.

How do you avoid overpaying for deals?  

Not overpaying for deals starts with fund size. We have been very thoughtful about matching fund size with our ability to execute our strategy. Virtually every fund we have raised has been invested on the same timeline.

What will the firm look like in five years?   

The firm will likely look remarkably similar in five years with the exception of our mid-level partners. I would expect them to continue to progress in their careers and play a more meaningful role in the firm in the future. This will require that we continue to add talented partner-track professionals that can support this group.

Mark Dorman, managing director at Endeavour Capital. Photo courtesy of the firm.