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Andrew Weinberg, Brightstar

Brightstar’s ‘us and us’ investment model to mid-market US businesses strikes note with investors


In the US alone there are more than 200,000 middle market companies with revenues between USD10 million and USD1 billion. If one narrows that range to USD50 million to USD1 billion in revenue, there are 32,000 businesses, with around 15 times as many private businesses to public businesses. 

That’s a pretty big engine of economic growth and one that Brightstar Capital Partners is training its investing and operating talents on to seek out good US businesses with a clear growth trajectory.

“Our strategy has always been about how to be more than a capital provider to middle market, closely held companies, either family-owned or backed by entrepreneurs by adding a second component; namely, how to provide much needed operational and strategic resources to those companies by virtue of our partnership,” explains Andrew Weinberg (pictured), Brightstar’s Founder and Managing Partner. 

These types of companies face many challenges going forward, from next generation leadership, to attracting executive talent beyond the founding family to responding to needs in the market. Data suggests there is an estimated USD30 trillion to USD40 trillion of wealth that will be passed on from the baby boomer generation in the US to their heirs over the next 25 to 30 years. 

Against that backdrop, not to mention the continued high level institutional investor interest in PE funds, Brightstar recently closed its inaugural fund, raising in excess of USD710 million in assets. According to PitchBook, that makes it one of the largest first-time private equity fundraises in the last year. 

“We’ve approached this strategy by taking a partner-driven ‘us and us’ model, as opposed to an ‘us and them’ model, to those closely held businesses. We have a hands-on operating model where we work with each of our portfolio companies and give them resources, in terms of people, they might not ordinarily be able to tap into, given their size,” notes Weinberg.

The fund attracted broad-based support from a number of constituents – pension funds, university endowments, HNW investors, private foundations and family offices. Weinberg stresses that the team took the time to get know all prospective LPs and whilst Brightstar wasn’t necessarily surprised by the amount it raised, “we were very pleased to see the market resonate with our strategy”. 

“We took the time to put all the components together to have a fully developed fund strategy before we approached the market. By virtue of that process, which allowed LPs the time to get to know us, it helped provide a two-way dialogue and an opportunity for us to work with a great group of partners, which we hope to maintain going forward,” says Weinberg.

Brightstar’s approach is to primarily focus on US-headquartered businesses, which may or may not have global operations. 

Weinberg points out that one of the fund’s investments, Global Resale LLC, an Austin-based global provider of aftermarket services and reverse logistics, has its European headquarters in Essex, just outside of London. “We created that facility with a team of people we’ve known for some time and is consistent with our collective operating and investing experience at Brightstar,” he says.

To demonstrate the emphasis that Brightstar places on creating synergies with incumbent management teams, when Brightstar completed the acquisition of Global Resale on 31st March 2016 in partnership with the company’s founder and CEO, Jeff Zeigler, one of Brightstar’s senior partners, Tom J. Meredith, was appointed Chairman of the Board.

“Tom worked with Michael Dell as CFO when Dell was generating less than USD1 billion in revenue, and by the time he was 10 years into his role it was generating more than USD35 billion in revenue. 

“That level of experience helped create an opportunity for Tom to partner with Jeff Ziegler, having first met him over a decade ago. Those past experiences tend to create future opportunities that we think addresses a need in the marketplace we don’t see many others addressing,” remarks Weinberg. 

Global Resale is one of two investments made thus far in Brightstar’s fund. The second is Texas Water Supply Co., which it invested in last October. The company operates approximately 40 groundwater wells serving San Antonio and the surrounding Hill Country region. 

The firm’s investment will help Texas Water Supply provide reliable and sustainable water to the fast-growing region. 

Again, having the ability to leverage its collective expertise and network puts Brightstar in a position to help guide Texas Water Supply towards higher value creation. This was helped by the fact that one of Brightstar’s senior partners, Todd Brock, had a longstanding relationship with the owners of Texas Water Supply.  

Brock sits on the board of directors, as does another of its senior partners, Dr. Raul Deju, whose academic career led to his receiving a Ph.D in Engineering and Geosciences from the New Mexico Institute of Mining and Technology. 

“We think our model fits very well for the market we are serving, which is leveraging the collective experience and network of the Brightstar team to find the right opportunities and put the right resources to work to create value,” says Weinberg. He further adds:

“We are involved in day-to-day engagement in terms of sourcing, execution, value creation and eventual monetisation. As long as we take the view that this is a partnership, our collective experience helps to distinguish us from other private equity managers focused on the middle market. It gives us a better chance of success.”

Brightstar seeks to invest USD50 million to USD250 million of equity into businesses that generate between USD50 billion and USD1 billion of revenue. 
 
One of the operational aspects that has to be taken into consideration when driving excellence in portfolio companies is navigating the emotional aspect of the different actors involved; not least of which the CEO and/or chairman of the target company. 

As one manager told Private Equity Wire recently: “You need to find the right way to interact with the company founder and create a synergy; it’s a fine line that you need to tread. It’s important not to be seen to be micro-managing the business.

“There is a sensitivity (not to push too hard) and you have to ensure that your energy goes into the company that helps it to quickly grow. In our experience, if you are not in full alignment with the CEO, and they are not exactly aligned with where you want to go, you’ve got a problem.”

Asked how Brightstar treads that fine line with company-owned businesses, Weinberg points out that Brightstar neither wants to provide passive capital and turn up to a few board meetings a year, nor does it seek to go into a business and run it itself. 

“Our approach is to back healthy companies and management teams and help them on their trajectory to grow their business and create value. 

“We target healthy companies with a great management team and culture and we simply look to lend our resources, whether operational, strategic or other, coupled with our capital, to help them achieve that growth. We do believe that creating alignment among the stakeholders is important. If we don’t see that alignment from the outset it will not be an attractive opportunity for us,” he says.

Each deal is sourced on a proprietary basis, with Brightstar getting to know companies, owners and management teams over time. 

“We think that long-term relationships can benefit everyone because as much as they are picking a partner, we are too. Having a dialogue that discusses not just the strategy today but potential strategic investments going forward helps to create a great trust relationship that stands the test of time,” concludes Weinberg.

Eaton Partners served as the exclusive placement agent to the inaugural fund and Simpson Thacher & Bartlett LLP served as legal counsel.

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