We view our role as locating and partnering with great managers affording
the opportunity for them to attain their ambitions and goals by providing
access the resources they need. TGMG supports the management team in growing
the business organically and by providing the resources and deal support
required to grow through acquisition.
We assist our management teams with:
We empower our managers with operational control while offering support, thereby enabling them to grow their business and in turn, creating enduring value.
Private equity investment managers are long-term investors who typically take an active role in their portfolio companies. The initial investment is just the beginning of a long relationship between the private investment firm and the company manager. The Private Investment Firm creates value by providing capital and management expertise. The Operating Partners are often important players in supporting strong management teams in growing the firm and facilitating strategic partnerships.
Our small to middle market focus, operational experience and investment philosophy differentiate our firm. Small to middle market companies face issues and challenges very different than those of larger companies. Small to middle market transactions are by definition more concentrated and afford the potential for more accretive returns based upon the performance of the firm. To this end the successful execution of small to middle market transaction requires rigor, attention to detail, specialized experience, and proven judgment. The Operating Partners have spent most of our careers focused on the small to middle market and understand the challenges and opportunities. As long term investors who are interested in establishing lasting relationships with managers, we are keenly interested in partnering with the right management teams. We hope and expect management teams to take the same approach in selecting an equity firm to partner with. We believe when it comes to small market deals in our areas of expertise, we offer a unique combination of experience.
TGMG is a “fundless sponsor”. Each investment has a specific group of equity investors who commit funds to an individual acquisition or strategy. Much of our capital actually comes from the Operating Partners plus a selected group of investors and partner private investment firms who share our strategy and philosophy. This allows us flexibility and the ability to match the right value added investors to the right transaction.
The Operating Partners take substantial positions in every investment we make. In addition we work closely with our small group of investors allowing us the capability to make quick decisions regarding investments. The members of the TGMG investor group are individuals (no institutional money) who provide capital, experience and other value added services in connection with our investments. Each of our investors has been selected by the Operating Partners of TGMG and are philosophically aligned with our investment and management strategy. Our investor group includes business owners, high net worth professionals, prominent academicians and financiers who are actively involved in the investment decision making process.
No. Venture capital is a subset of the larger private equity asset class. Venture capitalists focus on investing in private, young, fast growing companies. Our investments are classified as Private Equity in that we are focused on investing in mature companies (5 years or older).
We value a firm by using several methods. The first method we use to quickly assess value is by using a trailing twelve month multiple of EBITDA. TGMG will adjust EBITDA to reflect the true economic benefit of ownership. Adjusted EBITDA is income before interest, taxes, and expenses that will not continue after the purchase, such as a high level of owner compensation, other non-business or extraordinary costs. Any such non-recurring or non-operational expenses are added back to income, thus increasing the base for the purchase price. This method allows us to quickly determine if the sales price expectations of the seller can be met. There are numerous variables that dictate a multiple and every company needs to be evaluated based upon its specific situation and current market conditions and outlook. In general small to mid market EBITDA multiples range from 3-6 times. The quality and level of earnings, growth potential, management team and capital expenditure requirements all are factors in the valuation of a firm.
We consider ourselves financial buyers since we do not have an interest in materially changing how a firm operates post-closing. Since we are investing in quality companies with outstanding management teams, we are primarily interested in maintaining the operations and culture that have made the business attractive to us in the first place.
We create a multi-variable financial model and financial dashboard for every company. From stress testing the model with numerous potential scenarios of combined events, we derive what we believe is the optimal capital structure, a structure that addresses the requirements of the funding sources, investors and management team while providing for the long term health of the company. In all cases we combine the proper blend of equity and debt financing so as to mitigate business risk while affording the potential for substantial risk adjusted returns.
We have experience with, and have dealt successfully with, the emotional and business challenges unique to family businesses. We understand that family owned firms have strong cultures and tend to be less likely to be driven by short-term profits, traits that fit our long term investment strategy. We also recognize family owned companies often have complex equity and management structures. We provide liquidity to those who wish to transition or exit and institute a comprehensive growth plan including financial and internal controls so as to ensure the long term viability of the enterprise and create enduring value for a new generation of ownership.
After holding equity in the company, and successfully creating shareholder value TGMG will generally seek a liquidity event in 5-10 years to provide a return to our investors and management team. Market conditions, financial performance and other issues play a role in determining the length of any given investment. The owner-managers take part in the liquidity decision. Liquidity may be derived from a recapitalization, selling the business to another company or in rare instances taking it public. While the actual liquidity event is often different than planned, we find it’s valuable to establish expectations and establish potential scenarios at the onset of the investment.
A foundation of our investment philosophy is to align our interests with those of our manager partners. We believe the best managers are highly motivated owners who have the potential to earn entrepreneurial size returns for their efforts and investments. The Operating Partners of TGMG commit a significant portion of the capital needed for every transaction we expect the managers to commit a material portion of their net worth to the transaction as well. Irrespective of the dollar amount, we believe a sizeable commitment of capital indicates confidence in the enterprise and ability to execute on the plan.
In short – it depends on your objectives. Some owners wish to fully retire after the sale. Others may want to have a continuing role in the company while obtaining partial liquidity, allowing them to diversify their interests, while enabling them to take part in growing their company with lower personal risk through infusions of outside capital. We respect and greatly value the role of experienced owners and proven value creators and seek ways for them to continue their relationship with the firm. To this end we are pleased to consider all proposals from owners and managers for post-closing roles. In all cases we work to understand your goals and work with management teams and create structures to assist you in obtaining your objectives while securing the long term viability of the business.
As professional investors, our business is partnering with and investing in outstanding management teams who work in areas in which the Operating Partners have the ability to add value. Our role is to assist management grow the business and create value. To this end we intend to partner with incumbent management teams or to recruit experienced management teams from the outside in the absence of continuing leadership. In all cases it is our objective to partner with management teams who will be engaged in the day to day operations of the firms and allow the freedom and autonomy (as long as strategic goals are being met) to do what they do best - operate the business. We support them by sourcing and completing add-on acquisitions, providing advisory services and providing additional capital required to grow the firm.
A recapitalization (recap) can be considered a partial sale funded by a refinancing of the capital structure and equity ownership. TGMG utilizes recaps as a means of providing owner-managers a substantial liquidity event while realizing a retained equity ownership in the firm. Moreover, owners can realize even greater cash liquidity or what is commonly referred to “a second bite at the apple”, on subsequent sale(s) of their retained ownership.
For example, a business owner grew the company to sales of $10 million with EBITDA of $2 million, but the business needed more capital to continue its growth. The owner-manager knew that if he committed more of his own funds, he would put at risk the value he had already created for himself. Instead, he opted to sell 60% of the business to ABC Partners, a private investment firm, for $6 million. The owner-manager increased his liquidity and minimized his personal risk and the company obtained the financing it needed to sustain growth.
Over a 5 year period, the company achieved the objectives of its Operating Plan, growing to $15 million in sales producing $3 million in EBITDA. ABC Partners needed to obtain liquidity for their investors and owner-management team and introduced a buyer of the business, DEF Partners.
DEF agreed to purchase the firm for $18 million, making the manager owners 40% retained interest in the firm worth $7 million, considerably more than the 60% previously sold. DEF Partners is also anxious to partner with management and offers the owner-manager an opportunity to invest and participate in equity incentive plans in the recapitalized firm.
As long as value is created the deal becomes more attractive to capital thus creating a larger company and related liquidity events over time. This strategy is of particular value to a key component of the value creation, the owner-manager.
While we understand there can be substantial value from investing in smaller companies, smaller companies are generally more risky than larger firms. This is due to limited management bench strength, customer concentrations and lack of geographic diversification. This is reflected by market, multiples of smaller firms are generally lower than those of larger comparable enterprises. We try to find deals that are small enough for us to have a meaningful impact on performance but large enough so as to create enough value to be accretive to our management teams and investors.
“Everyone has a plan until they get hit.” Mike Tyson. We are seasoned investors and business owners who understand that things will, in all likelihood, not go as planned. We understand the potential for and effects of market and other unforeseeable events. We make every effort to structure portfolio companies to sustain historical market deviations. We also rely heavily on our management teams and their experience in dealing with challenging situations. In cases where the firm might benefit from additional capabilities, we believe our professional network can help identify outside managerial resources to help address problems. Part of our long-term investment strategy is based on the understanding that market fluctuations will occur. We believe a steady and patient approach is the best way to cultivate an entrepreneurial culture of problem solving, so as to withstand difficult circumstances and create value over time.
Our objective is to execute one to three deals a year.
Private equity funds typically are structured as private limited partnerships. The Operating Partners of the fund are the general partners. The individual and institutional investors are the limited partners. Detailed private equity partnership agreements signed by the parties involved govern the actions and define the roles of both the general and limited partners.
The primary difference is that investments in the equity of private companies (private equity) are illiquid. Limited partners in a private equity fund agree to make their capital commitments available for draw-downs by the general partner. There is no public exchange for the trading of limited partnership interests. Depending on how skillfully the general partner invests, limited partners begin receiving cash or stock distributions a few years into the life of a partnership. They generally won't receive their final distributions until the last years of what typically is a 10-year partnership term.
Private equity is considered to be a high-risk, high-return asset class that, in moderation, can enhance the overall return of a well-diversified investment portfolio. Studies also have shown that private equity returns don't correlate closely with returns from other asset classes, such as bonds and public equities. Having an allocation to private equity therefore can help smooth out the returns of a balanced portfolio. Institutional investors generally set target allocations to private equity of anywhere from 1 percent to 25 percent, depending on their appetite for risk and their need for liquidity.