Padraic McConville
@PadraicMcC
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what have I done to help? garbage plate native. 👩🏻👶🏻👶🏻🐶. lmm PE / growth investor
Denver, CO
Joined February 2012
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Ran a list of PE & VC firms with $50m to $10bn of AUM yesterday for a friend.
If you're trying to get a job, market your service, or sell your company to this world - here ya go:
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Value Creation
Super simple way to think about value creation buckets:
- increase EBITDA via increase in revenue
- increase EBITDA via increase in margin
- produce return via increase in exit multiple vs. entry multiple
- produce return via debt paydown
Quick and dirty chart
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I think the VP position is the hardest role in PE firms (and it's where you see the most amount of fallout).
You are still expected to be a Deal Cyborg™ and you're also expected to demonstrate real People skills that will allow you to:
- source (deals)
- build great
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When I look at the very best deals in my career (LMM and MM PE, 20 years, 3 firms, across a handful of sectors) most were due to solid growth and someone paying a considerably higher multiple than our entry multiple. At exit, all were market leaders in their sector and/or really
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@RexChapman
That’s my cousin behind the counter. Scary day. She’s miraculously not injured. Shook, but doing okay.
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I've received a bunch of DMs about "getting into PE" and figured it makes sense to reply here. This is most applicable to entry-level and post-MBA roles (I've interviewed at least 100 candidates across these groups):
1. Demonstrate your work - model stuff. Note: very few
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When I was in b school class employment went from 99% to ~60% (GR). MBB offers went to 0 & banking went from 65 to 8.
I cold called 140 firms. Got in my car to meet about 40 in person. Did two unpaid internships. Didn’t get offers until week before graduation.
Giddy up.
Just heard from a friend that 30% of her class at Harvard Business School is having a tough time getting even one job offer.
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I have worked in private equity for 20 years and have never seen a manufacturing business with 33% sustained FCF margins 🤷🏻♂️
This stuff is a lot harder than the internet makes it appear
The owner's thoughts on a boring manufacturing business:
For every dollar that rolls in the door .33 cents goes to the business .33 goes to labor and .33 goes to the owner.
A truly dream way to use the dollar.
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Canaccord's office of the CFO report out today:
deck:
Really nice report from AGC on the "office of the CFO"
(link in comment)
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Really nice report from AGC on the "office of the CFO"
(link in comment)
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Here's a "quick and dirty" (ie. not totally correct but will get you 80% of the way there) that lets you toggle rollover and reprices the platform on an annual basis 👊:
Would love to see her build an LBO model with multiple tuck in acquisitions and a 20% equity rollover assumption
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"hey david, thanks for sending over the materials.
It's tough for us to do a full analysis without costs broken out - are you able to send over a more granular P&L (eg. ads, staff, etc)?
MRR is small for our typical sweet spot and we'd love to better understand churn (it's on
Last year a VC begged to meet with us
When we sent over our numbers, they concluded that our MRR was "almost meaningless"
Then they ended the email by trying to invest at half our valuation
We did not take their money
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Niche sourcing tip:
Run a UCC search on your geography / sector > reveal current lenders > seek out a relationship > warm intro.
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Nice update on the data science / analytics space from the Houlihan team:
report:
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We spend a lot of time in the tech services sector (have current investments in a software dev firm and a salesforce partner) - great stuff from the folks at Guggenheim: digital engineering continues to trade at a premium in the broader sector -
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Dinners with Purpose
My partner Nancy was the co-founder and CEO of ViaWest (now Flexential, where she's still the Chair). She took it to $120m of EBITDA, had four capital partners along the way, and her last exit was $1.8bn. She's been through the PE ringer.
She co-founded
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Great overview on Digital Transformation from Brian Clute (ex Serant, Vista) over at OneGuide (link to piece in next comment), including this framework on the "three levels of tooling priority":
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I've worked in a handful of firms that had different views on if / how to use operating expertise re: portfolio companies (no presence; huge "value creation" team; current firm is led by ex-CEOs and includes an in-house team of business builders / operators)
Kearney puts
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Guggenheim IT Services update is out -
Digital Engineering firms took a good hit in the public markets in H1 (largely driven by EPAM, I think). Anecdotally, we are just starting to see increases in pipelines and budgets loosening...
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THESIS TIME
We're spending a lot of time in the accounting & tax and "office of the CFO" sectors (so are a lot of other people!). Our "point of view" in the following tweets.
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Our PE firm is run by ex-founders / operators and I love this post.
My prior firm also built and shut down a 100+ person “value creation” team (ie. Operators).
At rallyday, we lean hard into setting up the right team agreements and communication frameworks early on. Makes
The Oft-Maligned Operating Partner and the Use of Tension Questions in Market Research
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What are your favorite free resources out there?
It's incredible how accessible top-class information and learning has become.
Here are a handful of mine:
LEADERSHIP / COACHING -
@edbatista
website: highly recommend everything on here, particularly his Art of
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@privateinequity
@girdley
How to find a great business:
Step 1 - email these bankers (this is going to be a bit out of date, but should be helpful):
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I’ve spent a decent amount of time with undergrads and MBAs around career advice and this is my
#1
point - by far the best way to land a gig is to “get good*” at networking
* - just go do it
Research shows that 85% of job roles are filled through networking. Here are some strategies to help you get started.
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Some thoughts on how to avoid "modeling is perfunctory and dumb":
- co-create with management!
- work backward from exit; what do we need to look like to optimize outcome?
- model should be a reflection of strategy + execution roadmap (do you have those two things?); will
What type of analysis you do in PE
I do have to admit that this post is spot on.
I am at a similar point in my career and I was personally shocked to see how stupid modeling is in PE. PE modeling looks something like this:
Create the most granular bottom-up model you could
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We source about 40% of our deal flow via cold outreach and, for me, Brett is highlighting the importance of Credibility in “high stakes” offerings (investing, raising capital, etc); we get our highest response rates where we are most credible. Personalization is key for us, too
Sharing mine, this is converting at 70.8% email-to-meeting:
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got some new followers which puts me at <50% bots!
me: bartended in IRE > LMM PE (this is the path!) > MBA > MM PE > Exec Ops > IS > lead investment team at Rallyday Partners (LMM PE).
I'll try to put out stuff that will help. be good to each other 🤘
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These two pieces got downloaded 3k+ times - sharing again if it's helpful:
List of investment bankers:
List of NA PE / VC Firms w/ $50m+ AUM:
👊
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@LA_Multi_Fam
Long time investor and one time operator in early childhood education:
- parents should do what they feel is best for their child / family
- the vast majority of studies will show you that ece has a profoundly positive impact on a child’s development
- I think ece is the best
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Mucho activity - good time for an intro:
I live in Denver and lead the investment team for Rallyday Partners (lmm PE / Growth investor). What we do:
- $1m - $10m EBITDA companies; growth-oriented
- healthcare (services and tech); tech (services and software); b2b services;
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Bain M&A report showing 2024 in line with 2023. Most of the bankers we talked to in Dec / Jan thought there would be a good pickup in Q1 and Q2 - ultimately didn't materialize.
We reached out to about 900 companies in 2023 that fit our criteria and showed a number of growth
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Hey
@benchten
, any words of motivation or wisdom you can offer my 7 yr old nephew, an aspiring keys player and big heartbreakers fan - his first musical love and concert (!) - while he digs in? The boys at rock camp are teasing him that there are no piano players in rock n' roll!
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This is great and my two cents on the broader “expert” topic:
- I’ve used every major expert network
- I’ve been “the expert” too (side note: you can easily charge $1k+ per hour)
- As an investor, I’ve generally found the GLG-style not that effective (very high cost and lots of
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@roybahat
And a Thank You to the folks that use the PHONENUMBER,,PASSCODE format for one-touch dial-ins. I've spent an embarrassing amount of time dialing the wrong digits while flipping from calendar to phone. Signing off for the weekend with my nerdiest tweet, ever.
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If your independent board member is not:
- adding substantive strategic value
- introducing you to potential customers
- helping bring in great talent
- introducing you to potential M&A prospects
It might be time to rethink your board.
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Our purpose at Rallyday is to empower teams to go even bigger, create the most value for the most people, & share in the experience of a lifetime.
Sharing our refreshed investment bank (890) + contact (5500) list "for the most people". 👊❤️
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PSA:
If you participate in expert network calls (as the “expert”) you can easily charge $1k+ per hour. You will get zero pushback.
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Don Reichert wrote a bunch of books on where to camp - off the beaten path - in the PNW National forests. We probably did about 15 of these sites when we lived there - easily the best camping we’ve ever done (beautiful sites and almost always alone and accessible…)
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@realrookieceo
Long time investor and one time operator 🙋🏻♂️:
- quality / culture are key
- 50% turnover rate; massive exit from the labor force in last 2+ years
- 10% - 25% ebitda margin range
- premium sector “performs” the best
- 4%-7% tuition increase per year
- 1% student growth, per year
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💯
Don’t blame me for the fact that research shows that women are better leaders, better negotiators, better salespersons, better investors. ( May be selfserving to say it, but you’ll find detailed support for the statement above in The Excellence Dividend.)
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one of the bad bits abt PE is that mgrs are incentivized to raise larger funds until they're fat & happy on fees; this creates unnatural decisions at the portco level & often takes mgrs out of the part of the market where they excel. we better align incentives (LP, GP, portcos)
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Really nice graphic from Kate Hopkins at OneGuide on how she's seeing portfolio advisors / board members getting comped in PE and VC:
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@krishnanrohit
Highly recommend: 😂😂
Nasty, Brutish, and Short: Adventures in Philosophy with My Kids
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THESIS TIME
I've spent a bunch of my career around Early Childhood Education (both as an investor and operator) and we're actively looking for a partner in the sector that is focused on creating great experiences for teachers and families.
Key considerations:
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More thesis stuff:
Before I joined Rallyday I started a small independent sponsor effort and we put a bunch of thesis docs together (physical therapy, early childhood, RIA market, recruitment process outsourcing...) - they're dated and attaching in the event they're helpful
/
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Great insight from
@AndreRetterath
and your regular reminder that urgency matters: founders that secured funding "typically responded to initial emails twice as fast as those who did not..."
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List of SBIC lenders below - some quick notes for borrower qualification:
- at least 51% of employees based in the US
- authorized industry (see next tweet)
- after-tax income for the previous two years isn't above $65m; total net worth doesn't exceed $18m
Lenders:
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Massive ROI around improving front-line leadership, and super hard to do if c-suite isn't aligned on People infrastructure: purpose, culture, leadership, talent acquisition, performance management, etc.
A few helpful pieces:
- purpose:
- culture:
𝗧𝗵𝗲 𝗕𝗲𝘀𝘁 𝗣𝗹𝗮𝗰𝗲 𝘁𝗼 𝗜𝗻𝘃𝗲𝘀𝘁 𝗜𝗻 𝗬𝗼𝘂𝗿 𝗢𝗿𝗴: 𝗙𝗿𝗼𝗻𝘁 𝗟𝗶𝗻𝗲 𝗟𝗲𝗮𝗱𝗲𝗿𝘀𝗵𝗶𝗽
If you are going to overspend on comp and development, your front line leaders are the best place to do so
Where have front line leaders added value in your org?
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Hey
#pdx
!
@JeffreyFoucault
is playing
@albertarosepdx
on Friday (11/9), and if you voted and need a ticket, I'll buy ya one (up to 10 folks - dm me!). Here's a cut clip of Jeffrey and Mark Erelli doing Prine's Mexican Home* (*harmony vocals courtesy of the nice lady next to me)
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One of the best pieces of leadership advice I ever received was "you can't lead someone until you figure out a way to love them".
In the meantime, a nice self-assessment to check in on your leadership:
- I'm clear on my role and responsibilities
- I'm clear on the motivations
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@mattmochary
@Kellblog
@schlaf
@shreyas
@AswathDamodaran
DEAL STUFF
@BrentBeshore
@PermanentEquity
- bit on due diligence. Especially awesome if you’re a seller trying to understand the process. Great resource if you’re getting into the deal universe too. 👊🏻
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@tom_peters
@IzoldaT
@Timheadwaters1
@peterdekuster11
A mentor of mine once told me that "politics" is a euphemism for poor communication. If you're citing "politics" as a reason for frustration or bad performance, it's because people aren't talking. Lots of truth in this.
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I think Dino is spot on and my two cents:
If you find a high-performing leader + culture (read: highly engaged and producing great / above-market outcomes) and you believe you can invest in the infrastructure needed to "scale people," these can be great opportunities. 👊
If you acquire people based businesses where employees have special skills and expertise that cannot be easily replaced, be wary of the things you think you are going to achieve with the organization as a PE sponsor, particularly from a cultural perspective and particularly if
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asking employees "what's your value proposition and what makes you different" is pound for pound the most meaningful diligence question when learning about a company. Will tell you a lot about alignment, engagement, and how well a company knows its GTM motion (pitch, ICP, etc.)
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On writing and figuring stuff out:
Six years ago when I was 36 and trying to figure out what I wanted to do with my life, I wrote a note to myself on Why Culture Matters - it served as a guiding light around the type of leader I wanted to be and the sorts of folks I wanted to be
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@privateinequity
This is the very PE answer (which I can agree with!) and the reality is this stuff is a problem with most sales teams, for example. Need admin / ops and / or tools + processes to make it easy (eg scratchpad for SFDC…) for most teams to get there.
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Axial's Top LMM Sellside technology bankers below (I believe measured by deals closed on their platform). For tech services, we tend to see the most flow from Equiteq, Clearsight and 7 Mile (now part of Houlihan). Canaccord and Guggenheim are great too and a bit up-market from
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Updated our investment banker list with a bunch of "Industries" designations. It's not perfect but it should be helpful. 🤟🩷
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Every customer study I've done as part of a transaction has included Ease of Doing Business With as a top 3 factor in Purchasing Criteria.
What does that mean? Gallup defines it as:
- The simplicity and transparency of a company’s processes
- How quickly a company responds to
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This is very good and ironically better than a real percentage of PE fund strategies - loads of finance folks think this work is “beneath them”.
I thought buying businesses off-market would be a good investment
But I didn't know it would return $11.6 million after ~ two years…
Here’s how we used the FIND framework to turn $2.9 million into $11.6 million (so simple it's dumb. YOU SHOULD STEAL THIS):
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there's a lot of truth in Will's points and my thoughts / experience:
about half of my platform deals (20+) were proprietary; the majority of add-ons (35+) were proprietary. about 40% of Rallyday's deal flow is proprietary; the majority of our completed deals are proprietary;
Agreed. Here’s the primary reason why I avoid off market proprietary deals. And the same reason why a lot of my PE contacts avoid it for the same reason.
Off market means I’m going to 3x the time and effort to find an opportunity because most of the
#SMB
owners aren’t ready to
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@QuilanFoster
A few key pieces of our process:
Codifying and amplifying purpose:
Codifying and amplifying culture (beliefs, behaviors, expected outcomes):
Talent acquisition strategy:
We'll have our whole program online
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@Restructuring__
really love the idea of this program and have talked to a bunch of people who have done alpine or shore - mostly hear that it's "overpromised and underdelivered" (long wait periods to get placed; unattractive roles in unattractive places); heard alpine is moving toward military
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@PrivatEquityGuy
- have worked in PE for about 20 years and have never fired a founder
- we invest in healthy companies with $15m - $50m of revenue and are growing infrastructure (people / process / tools) to support continued growth
- we have a "Rallyday Accelerator Program" that is built on
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@SMB_Attorney
Dude these are nearly impossible to get done!
Massive brain damage, cost + low probability of closing (fiduciary responsibility of trustee is such a complicating factor).
Love the masterclass 👊🏻
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Most of this problem is due to the fact that a ton of firms have terrible cultures (2 and 20 and 10+ fund life is a helluva drug). You have to be really intentional about finding the good ones and this can be really tough when you’re just “trying to break in.”
Learn as much as
Yup PE is definitely 5x worse than banking. I now regret every decision I’ve made in my life that led me to this point
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@PEoperator
Took an operating role at a portco when I was 34 for two years and it had a tremendous impact on how I work (now 42, lmm PE investor).
Current firm MPs are ex founder / CEOs and there are equal parts business builders (ex operators) and investors in our shop.
I’m not
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Value Creation 101
I bought a pair of raleigh denim jeans in 2020. I recently went to re-up.
What is stopping you from raising your prices 60%+??
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@SpiritofPines
I’ve invested / worked in early childhood education, have two littles, and I believe these two things at the same time: do what’s right for you and ECE is the most impactful investment our country can make 👊🏻
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/
4. list of bankers catering mostly to $0 - $25m EBITDA companies (this is a tad out of date):
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In no particular order and a combination of the two (topic - entry-level cold outreach and networking stuff):
- get the basics right (spelling, grammar, etc); people misspell my name all the time - don't do that
- practice your pitch, practice your pitch, practice your pitch.
@PadraicMcC
Thanks for the post - any advice / prior posts on this "learn the basics of cold outreach and networking etiquette"?
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My man
@daveheal
gave me a copy of Miles From The Lightning in 1906 and
@JeffreyFoucault
became one of my favorite songwriters, on the spot. 100+ years later, he’s still doing it. Go support this dude and his marvelous songs:
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Nice summary of the
@Perficient
acquisition by
@eqt
from the folks at
@ClearsightMB
- about 17x $177m of Q1 LTM EBITDA...
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@mattmochary
@Kellblog
@schlaf
@shreyas
Finance Stuff:
@AswathDamodaran
site: I spent so much time on here when I was an analyst / associate a couple of moons ago!
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Due Diligence 101
If you're putting together a commercial DD report, make sure the CEO / mgmt team weigh in on scope:
1. gets buy-in; otherwise, they will likely throw it in the bin
2. this doc should be a super valuable resource in strategic planning; it won't be if mgmt
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One of my better experiences was with a co that had a 5%-ish margin (security guard biz with a highly variable cost structure). We made the bet that they could be the buyer of choice in a highly fragmented market.
Ended up doing 24 acquisitions in 24 months.
Agree with
I saw a few businesses this week that were +$12,000,000 in revenue and had Net Profit of 5%.
This is scary when you want to add 85% leverage.
How do you get remotely comfortable with this?
Not me😳
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@patrickdichter
We are actively looking at Rallyday 😃.
Happy to share our POV (“point of view”) for anyone interested
👊🏻
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Want to start an appreciation / positive rave habit on here.
First up, big shoutout to Keith Romero, co-founder at digital marketing agency Danton Ten Six.
Keith is a former Bain Consulting Partner and we crossed paths in b-school. Keith used to work with my wife, Keriann,
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Digital Engineering public comps trading around 15x EV/EBITDA per the new Canaccord report; they see "digital transformation" spending rebounding following a tough 2023 for a lot of companies:
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Rallyday POV here:
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+1000 on
@KHendersonCo
post.
I was 34 when I got my first coach and it changed my life.
Check out this great post from
@edbatista
if you’re thinking about it:
I put off hiring a personal coach for far too long.
So long, in fact, that when I finally reached out to the person I originally hoped to work with, he was full.
But he connected me with one of his good friends who’s building a coaching practice, Brian Gleason.
I started
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excited to share that our small team is growing - we're hiring a new Associate and new VP. job descriptions and application portals will be up on our site next week.
associate: 1-3 yrs experience (banking, consulting, investment)
vp: 5-7 yrs of direct PE experience
🤘
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@1dannymc
@FetaFund
@guessworkinvest
@CTW_SMB
@RegZeller
@smblawgroup
@lawyer4SMBs
Here's an incomplete list of 72 SBIC-backed lenders with contact information:
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I hope this works for Collin and a reminder that basing an interview process on any one question means you have an immature process (read: not as effective as it could be).
Structured interviews are the most highly correlated with success. Read Smart’s “Who” - he outlines
My favorite first question to ask in a job interview:
What research have you done about the company?
This tells me if they've put effort into their interview preparation.
If they didn't do any research, I'm ending the interview.
What are your favorite interview questions?
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Huh? Spending “3 more hours” working to pay the rent is not comparable to having the luxury of spending 3 hours to read books, or learn Coltrane solos, or stir pound cake mix. When your interest or dividend payments fund the regular - it’s a wee bit different. You know this Ari
1/ Painful truth: there's no such thing as "busy." Everyone who's ever lived had the same 24 hours in a day to divide up as they see fit. All we can do is prioritize.
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@Carnage4Life
For Google’s high performing teams, perhaps Dependability gets toward what you’re thinking about?
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@gah650
Joe Pug has a really great setup - book time slots on his site with calendly and pay right there with square and invite 4 friends to a zoom. They sell out as soon as he puts them up. Hoping others replicate this. Also hoping for live music but here we are.
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One problem with a lot of PE - it is so literally transaction oriented. Increase revenue and earnings isn’t even on this list! Build a business!
KEY DRIVERS OF VALUE IN AN LBO SEARCH FUND MODEL 101
With that, a reminder that every LBO transaction is different. Some of the factors here will drive much higher value in certain businesses than others.
Models are also imperfect and should not be the sole source of justifying
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@Patticus
I meet a lot of people that feel this way in my industry and I always point them to this piece by
@edbatista
; in my opinion, beware of the culture that conflates kindness with mediocrity.
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@JamesClear
I'm internally wired in a way that predisposes me to get very excited about this sort of thing. But one important lesson I've learned - you can hold people to really high standards and not be a jerk. That's the superpower, not the barking.
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