Insights
Aligning incentives through strong private equity partnerships
Bringing managerial sophistication to founder-owned businesses
At this year’s Stonehage Fleming Family Investment Conference, Meiping Yap, Director of Private Capital, sat down with Eric Kutsenda, Co-Founder & Managing Partner of Seidler Equity Partners. We share some highlights from their conversation below.
How was Seidler established as a private equity firm?
Our journey began as a family office. The Seidler family were founder-owners of a major league baseball team for many generations. They sold the business in 1998 and, like many clients of Stonehage Fleming, were interested in looking for direct investment opportunities.
What is the firm’s approach towards sourcing deals?
It all starts with the initial interactions with founders. These are not investment banking processes; we are meeting individuals with the sole purpose of getting to know them. At this point, there is often no deal on the table and it is another three years on average until any investment is made in the business.
Why is the ‘gestation period’ so long?
The reason is these people aren’t selling. They are inviting someone into their capital structure, into their boardroom, into their family's largest asset, and that takes time, relationship development and the alignment of interests. There is a sense in which, just as we are doing due diligence on these founders and their companies, they're doing the same on us. Many of the founders we have worked with have found this to be a refreshing approach. The deals we make are not the ‘cash out’ event for the founder. They are relying on us to help them lead the business to an exit event further down the road. We take that responsibility very seriously.
What are your views on minority versus majority stake deals?
We draw a big distinction between the definitions of ‘minority’ and ‘passive’. We find that there is no statistical difference in our returns over a very long period of time whether they were at 51% or 49%. It just doesn't matter. What does matter to us is a conviction that the incentives are aligned with the founders and the management team.
Can you give us an insight into the current founder mindset in the US?
For a lot of us, the last three years have probably been the most challenging in our careers to date. I'm not just talking about the pandemic, although that weighs into a lot of the things that founders have had to work through. We have also been dealing with labour inflation in the US and the challenge of attracting and retaining the right people.
The combination of these factors has led many founders to realise that the managerial sophistication required to successfully navigate through the current operating environment is high. I think that's where our message of partnership resonates with certain founders. It can be lonely at the top.