Source Talks is a series where we discuss deal origination with PE and M&A pros, in collaboration with David M. Toll.
In this episode, we speak with Scott McCormack of Seaport Capital about the firm’s growth and buyout investment strategy and how dedication to certain verticals has propelled their company into acquiring a successful portfolio.
Scott start off telling us a little bit about Seaport Capital and the kinds of deals that you sponsored there.
Seaport Capital is a middle-market private equity firm. We’re based in New York City. We’ve been around for 25 years. We started in 1997, and the original strategy was to do growth and buyout, investments in telecommunications, business and information services, and media companies. And over that time period, we’ve raised six funds and largely held to that same strategy.
Talk about how you find transactions there at Seaport Capital
There are five partners at Seaport. We each carry sourcing responsibilities as a partner. And so, the other, I would say, element that makes Seaport what it is, is that the five partners have been at Seaport at least 20 years each. And so over that time, again, not to be redundant, but staying focused in a vertical, staying focused in a certain size of the market we have built up, we think, fairly robust networks of intermediaries, investment bankers, management teams. We will continue to call on them and go to the same conferences, call the same investment banks, which tend to be kind of your smaller boutique investment banks. That’s not to say that we don’t try new things or bring in new technologies. We’re certainly much more robust in terms of CRM, using technologies like Sutton Place Strategies for instance. Just to help us see who else is out there that we may not know or may not be in our network yet.
Scott, tell us about a company that you’re excited about and how you found it.
In our current fund, which is fund six, the first investment we made is in a company called Exacom. Exacom provides logging recorders to the public safety market, which in layman’s terms is they record all the calls that come into a 911 call center, whether it be from your telephone, your cell phone, VoIP, phone, text, or the police radio. All of that communication gets captured by Exacom’s recorders. And this transaction, it came in again, like a somewhat typical deal that we ultimately get done. It came in through a smaller buyout fund that we know very well. It was actually a little bit too big for their investment size, so they recommended to the intermediary, hey, you should call Seaport because this looks a lot like a Seaport deal. An interesting aspect here, which is the first time we’ve done it was there’s actually an ESOP. And so, the CEO of this company had worked with this business under the ESOP structure for three to four years and got to the point where he said, hey, I can grow this business a lot faster if I kind of unwind this ESOP structure and I can put more of my cash flow and profits into growing the business versus kind of managing the ESOP structure.
And so, all those elements kind of came together to us from the standpoint of business model set up where we’re going to work with the existing CEO, he rolled into the new deal and it was in a sector that we thought we could, again kind of consolidate some of the other companies who look like Exacom as well as add to the platform through M&A.
Scott, tell us about a hidden talent or passion that you pursue outside out of the office.
I grew up in Minnesota playing ice hockey a lot of times outdoors. My kids here, I live in New Jersey, are both ice hockey players and so I’ve tried to give them the same opportunity I had, which is building an outdoor ice rink every winter for about the past 15 years.