Source Talks is a series where we discuss deal origination with PE and M&A pros, in collaboration with David M. Toll of Private Equity Career News.
In the latest installment we speak with Justin Smith, Managing Director of Business Development at Agellus Capital about the firm’s focus on roll-up and buy-and-build investment opportunities, as well as the firm’s commitment to relationship-building through travel, phone calls, and the most important of them all: data.
Justin, tell us about Agellus Capital and the kinds of deals that you sponsor there.
The genesis of Agellus Capital formed over fifteen years ago in Boston at a private equity firm called Audax. Many of your listeners will be familiar with it, that’s when Jeff Aiello and Beau Thomas came together. Soon after they became best friends after working there for several years. Later they were best men at one another’s weddings and just six months ago they formed Agellus together here in Clayton, Missouri. We do exactly what they did for the bulk of their careers which is invest in middle market and lower middle market essential non-discretionary services firms. We typically bucket our investment criteria into three buckets, all of which are essential non-discretionary services in fragmented markets. It’s all buy-and-build. Everything we look at needs to have a roll-up buy-and-build opportunity set. Bucket one is business services. That’s everything from professional, industrial, and commercial services. The second bucket is non-discretionary consumer. A lot of that is home services and auto aftermarket. And then third is transportation and logistics, supply chain, and infrastructure services. So those three buckets comprise our essential non-discretionary service set and that’s where we spend the vast majority of our time.
Tell us how large are the deals that you’re typically doing on the platform side on the add on side.
We have a $400 million Fund I vehicle with a target of five to seven platform investments into that vehicle. We look at investments of $2 million to $20 million for platforms on the EBITDA. Add-ons can be of any size. And ultimately, we’d like to get $75 million to $100 million of equity per platform factoring in co-investment from our LPs. So, a fairly small set of concentrated bets in Fund I.
Tell us what’s working today when it comes to finding the kinds of transactions that you do.
Number one and most important is relationship-building. So having deep relationships with the top 25 to 30 banks that are in your universe and making sure they care about you, making sure that in a close race you get that last look, so you have an opportunity to win the deal. That takes a lot of travel relationship-building, phone calls to build those relationships over time. Number two, something I spent a lot of time on is building out a scalable, programmatic data-driven model so that you can process all this deal flow, report around it, and then make decisions on where to spend your time. That would lead me to a shameless plug for SPS which we’re subscribers of. It’s a great tool to do just that. It makes sure that you can efficiently identify who are doing deals in your market, who you need to be in front of, and make sure you’re getting in front of that deal flow.
