Source Talks ep. 25

Source Talks is a series where we discuss deal origination with PE and M&A pros, in collaboration with David M. Toll.
In this interview, David speaks with Tim Frend, Managing Director at HCI Equity Partners, on their “business partner first” approach and the platform company that’s most exciting right now.

So Tim, tell me about HCI Equity and the kind of investing that you make there.

We sit in the lower middle market and we’re focused, I’d say more on business model than we are specific end market. So we know, you know, B2B manufacturing, distribution, and technical services pretty well. Our play is really get into a business that’s mid to high single digit of EBIDA in a really large, really fragmented space predominantly in the US and grow that to 20, 30 million of EBIDA or north through add-on acquisitions and organic growth. We’re going to market as business partners first, rather than just capital providers or private equity investors. So, our team is structured in a way that we’re hitting it from all angles. So you have folks like myself, who I did a couple years of investment banking then went into private equity. And so I spike in M&A, strategy, and finance and accounting. And then we have an ops team at HCI who spikes in all the functional areas of expertise.

Tim, what role does technology play in your deal origination efforts?

We use SPS in a variety of different ways. First and foremost, as I mentioned, we’re constantly trying to make sure that we have the broadest universe possible that’s applicable, so it’s helped us make sure that we’re constantly in including new firms and new professionals as they close deals and enter the market. We’ve got it actually very well integrated into our CRM and into some other automated features where if we miss a certain deal in a space, I will get an email generated to me.

Tell us about a, a platform company that you found that you’re just super excited about.

MSI Express is probably the one that’s most recent. They are the co-packer, co-manufacturer of shelf-stable foods. So both human and pet foods. That was a business that we sourced from a regional investment bank in the Midwest. We acquired the first business in the platform in August 2018. We did our first add-on in May 2019 that just about doubled the business. We then did a corporate carve out on new year’s Eve of 2019. And we actually just consummated our third add-on, so fourth company in that platform in the last several weeks. So it’s now from a top line and bottom line perspective more than 10 times what it was in August of 2018. We try to build an organization that’s capable of growing a business well in advance of where it is today. So they’ve got aspirations to be a billion dollar top company in the next several years.

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