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Intro (00:01):
You're listening to the Alliant M&A Roundtable, providing insights and expertise on the unique risk management needs associated with private equity firms. Here is your host, Jonathan Gilbert.

Jon Gilbert (00:20):
Thank you all for joining us here today. We've got another series of the M&A podcast. Today we're joined with Heather Madland from Huron Capital and we're going to talk a little bit about the state of the market, what's new and exciting at Huron Capital and really Huron being one of the pioneers in the industry, has incredible perspective on managing through any economic time. And I imagine they expect to be quite busy over the coming 12 months as we get rolling into 2023. You know, Heather, if you could start by telling us a little bit about Huron Capital and you know, really again, it was one of the pioneers in the industry and it sort of paved the way for what's now thousands of other firms.

Heather Madland (00:58):
Indeed, yeah, thanks, Jon. It's so nice to be here. Yeah, it's really interesting, right? 23 years for a private equity firm to be around is an awfully long time. I think we're in rarefied air a little bit given a lot of firms don't make it this far. And so, you know, we're really grateful that, you know, we've been through a leadership succession and so the next generation of leaders is now running the day-to-day of the firm. And so we're super energized about the next 20 years of Huron Capital. But we are a thematic firm, which means we are very focused on specific sectors within the services industry. So we focus on 10 sectors that fall broadly into three primary industries, commercial and industrial services, professional services and consumer services. And you know, we look primarily at buying founder owned companies. So, we're majority buyout only. We like partnering with founder-owners, to professionalize their companies and prepare them to scale through M&A. So M&A, another word for that is buy and build. But you know, generally this is what we have done for 23 years. It is not uncommon for us, in any given year, to have two dozen plus add-ons across the portfolio, in addition to the two to four platforms that we close every year. So, certainly a playbook that we know well and that we execute day-in and day-out here at Huron.

Jon Gilbert (02:22):
That's great. Well it sounds like a busy 23 years. How about a little bit on your background and kind of what attracted you to the firm? It'd be great to hear.

Heather Madland (02:29):
Well, I mean, my connection with Huron goes all the way back to the first five years of my career. So, suffice it to say, I led the largest financing that Huron had done to date as a firm while I was at Comerica Bank, based in Detroit. I think the total debt financing was like $35 million, and my boss was MIA at the time and one of the founding partners called me and said, get your butt to Huntingman's office. We have to negotiate the intercredit agreement and the financial covenants. And I picked up the phone, called my attorney and said, you're meeting me there, and paper closed the deal that night. The firm was investing on their first fund at the time, that's how long ago it was. And I guess that's the beauty of not burning bridges during your career, because my career certainly came full circle. I spent the first 17-ish years of my career on the debt side of the balance sheet. I did that in Chicago, I did that in San Francisco. And when Huron was raising fund five, they reached out and said, would you be interested in joining the team? And it was something that I had thought about, being on the equity side of the balance sheet and you know, it's going on I think 10 years that I have been here. So, certainly, a wild ride that I've enjoyed quite a bit.

Jon Gilbert (03:43):
I bet, that's really interesting and quite a good history. We'd love to talk a little bit about ExperiGreen, which I understand was a recent acquisition by the firm and you know, to us, it looks a little bit different than some of the other lawn care service companies that are out there, particularly ones that even have a buy and build strategy, whether it's Heartland, or Sperber or United Land Services. What makes ExperiGreen, you know, unique and, you know, what are the plans for the future there?

Heather Madland (04:07):
Sure, I mean, I'm going to start from the beginning because ExperiGreen is a great example of how we build businesses through our exec-factor strategy. So, exec-factor is a term that we coined for our CEO and thesis led investment strategy. It's something that we've been doing since the firm started, over 20 years ago. And you know, we started with a thesis in lawn care. And when I say lawn care, the terms that the industry know are, 'weed and feed' and 'mow and blow'. So, 'mow and blow', is kind of your basic, you know, mowing and blowing. That's what it is. It's more commoditized, it's less expensive, it's certainly not very technical work. And part of our strategy and what we like investing in, services, businesses, is more mission critical or technical labor. It creates more stickiness within the customer base. The recurring revenue is there as well. And so in resi-services, you know, lawn care to us is 'weed and feed'. So, ExperiGreen is a business that focuses on fertilization, aeration, you know, shrub health, pest control, anything outside the home that requires a little bit more technical care, but is also recurring. So we underwrote the thesis in conjunction with the management team that we were introduced to who had started ExperiGreen, a few years before we made the investment. In fact, it was quite small when we first got introduced and we followed the company along and connected with the management team advising them on their M&A strategy without investing yet. And that helped us with underwriting a thesis and how we wanted to grow the business. It helped us in getting to know the management team and the culture that they had built.

We made the investment in ExperiGreen in late summer and part of our investment thesis, our biggest investment thesis is obviously a buy and build. And so we have a very unique situation at ExperiGreen when it comes to building an M&A pipeline. The founder of ExperiGreen, founded Real Green Systems, the largest independent software company in the lawn care industry. And so he has thousands of these small independent lawn care businesses as clients of Real Green. And from an integration perspective, in particular, it makes it very easy if the tuck-in or add-on target is on the same system. And so when building the M&A pipeline, this wasn't just, oh, let's call up CapIQ and figure out who the lawn care companies out there are in the Midwest and the Southeast where ExperiGreen was growing. But the management team here has relationships with these businesses. The core part of the management team, the CEO in particular, he built Scott's Long Care, which was then sold to TruGreen. And our operating partner here, David Alexander, was actually the CEO of TruGreen.

And he took that business from, you know, poor performance to astronomically great performance through buy and build and some efficiencies that he created. So we really have this investment circled with some really deep industry talent and operating talent. And so, it's a little unique for exec-factor, and the size of the company that we invested in, to have such a deep, strong management breadth of depth. But we were extremely excited to partner with the team. And so, you know, out of the gate, the team had already closed several add-ons this year alone. It is certainly a localized effort. It is focused on building density, in certain areas where ExperiGreen already has customers or tangential local territories or neighborhoods or counties, where they might benefit from the route-based efficiencies of already having customers in bi-parts.

Jon Gilbert (07:57):
That, that's great. I mean it sounds like a pretty powerful team of executives there, and certainly the pipeline just from the prior experience and not only a pipeline as you noted, but also the relationships, really gives you guys a leg up, I would imagine, as you're out shopping for potential companies.

Heather Madland (08:12):
Indeed, and when there's a personal relationship with these add-on targets, where we can have a conversation about what partnership with Huron and ExperiGreen looks like, what we bring to the table as an organization from a culture and growth perspective, it goes a long way. I think that's one of the beautiful things about Huron and its approach to buy and build is we work with founder-owners all the time. That's who we're buying our platforms from. And by being sector focused, we're able to show them a very clear path to value creation and liquidity creation for themselves, if they were going to roll any of their proceeds into the larger holding company.

Jon Gilbert (08:57):
That's great. And that makes a lot of sense. And as you continue to grow ExperiGreen through acquisition, how do you, and you touch on it a little bit, how do you sort of maintain that sort of company culture, that it sounds like they have really done a great job of creating the maintaining, at the company today?

Heather Madland (09:12):
Yeah, I mean I think part of it is, the management team has experience scaling rapidly and maintaining a great culture. You know, we saw what they built at Scott's and our operating partner who came from TruGreen and bought that business has a lot of insight into how that business was grown as well. I absolutely believe it's culture driven and culture is created and developed from the top down. And I think that's particularly important to us. It's not about just buying a company for scale, it's buying the right business, with the right team and the right partners.

Jon Gilbert (09:49):
That makes total sense, and especially, you know, keeping a stable workforce. From a labor standpoint, it's been challenging, I imagine for many companies in the last couple years. How has ExperiGreen sort of kept the reliable workforce? Is it all about, kind of the culture and talent and the right leaders treating the people correctly or what is the secret to success there?

Heather Madland (10:08):
Well, that's absolutely right. I think when, you know, we focus a lot on people. It's a services business, that requires a tremendous amount of client service. And so there needs to be this client-first culture that's built and people they need to be proud of the company that they're working for and the services that they're offering. And when your leadership and your middle managers are touting that and the experience that they're bringing with the service that they're offering the customer is positive, we feel very strongly in having those employees be part of our company.

Jon Gilbert (10:49):
Well, that was great. It was great hearing a bit about ExperiGreen and kind of what's going on there and we're excited to keep watching the company grow and for what comes in the years to come. Kind of taking a step back, as we look at kind of the macro-private equity market, I'm sure everyone is interested in hearing your view of what we have in store for 2023, whether it's on the fundraising side, valuations or just activity generally. Love to get your perspective.

Heather Madland (11:14):
Yeah, so you know, I think we're preparing for a slower first half of next year. I think, you know, the phrase I've been hearing is the tale of two halves for 2023. I think when M&A volume starts picking up, is going to be largely contingent on the debt markets. And what I mean by that is, just access to debt capital, especially for kind of traditional middle market companies. We see positive signs of inflation slowing down, which has certainly helped from, you know, a material cost perspective where relevant across the portfolio. And economically, while there is uncertainty, I think we focus, you know, in a pocket of the services industry that, we like to say and we've shown it through the portfolio through the years, that is largely recession resilient.

These are mission-critical services that we are offering and it does create some resiliency from cyclical demand. So, you know, that's good. I think our pipeline across the portfolio is as big as it's ever been. We are seeing that, we are also starting to see some of that pipeline work its way through. I think, supply chain issues caused some concern and delays for us earlier, but we're starting to see that clear up. So, I think from a budget perspective, you know, we are optimistic about the overall portfolio and its performance through next year despite the economic uncertainty. But, certainly those that are focused more in the consumer or retail or manufacturing space may have a different perspective on that. You know, a little bit of normalization seems okay to us at this point. And I think, we're embracing what's happening in the market with a positive outlook overall.

Jon Gilbert (13:01):
That, that's great. One, very insightful and it sounds like regardless of what it's going to be next year, you guys will be active, which is always exciting too. Well, thank you very much for joining us here today. It was great to speak to you and learn more about Huron Capital as well as your experience, and certainly ExperiGreen as well. So we do appreciate your time and join us here on the Alliant M&A podcast series.

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