PE Value Drivers Series: A Non-Cookie Cutter Approach to Investment Analysis and Portfolio Growth

This episode features Phil Curatilo, Principal and Chief Marketing Officer at Seacoast Capital. Phil has been both an investor and chief marketing officer in private equity, a business educator, and a marketing and sales professional in telecommunications. Today, in addition to sourcing and evaluating investment opportunities at Seacoast, Phil creates the go-to-market strategies for the firm to increase investment opportunity flow and selectively helps Seacoast partner companies leverage sales and marketing opportunities.

PE Value Drivers Phil Curatilo - Part 1 Final

Some key takeaways from our conversation:

About Seacoast Capital

  • Seacoast Capital operates as a non-controlling investor in a minority position. They require owners and management teams to retain control after they invest.
  • Their thesis is if the owner of a private company is willing to walk away, the best days are likely behind it. They also do not back other private equity sponsors in their buyouts.
  • Since 1994, Seacoast has made 80 non-controlling direct investments across 28 states in industries ranging from porta potties to software.
  • On its fourth fund, they’re about 65% invested and continue to seek out new investment opportunities.
  • They’re industry agnostic, more interested in a private company’s need for capital and how they can be helpful.
  • They operate as consultants with capital, helping companies do something they cannot do on their own, such as implement new technology, expand their C suite, and recommend go-to-market strategies.
  • They invest five to $25 million in companies with at least $10 million revenue and $2 million EBITDA, up to $18 million EBITDA but have teamed up with others on some larger investments.
  • They are an SBIC, a Small Business Investment Company overseen by the US Small Business Administration and only invest in US-based companies.

Mr. Curatilo’ Role

  • First, he works to ensure the marketplace knows of Seacoast Capital, its interests, what they stand for, and the investments they seek.
  • Second, he’s responsible for originating new investment opportunities for the eastern third of the US.
  • Third, he helps selected Seacoast portfolio companies leverage their sales and marketing opportunities. Hence, Chief Outsiders is launching a project for one of Seacoast’s newest portfolio investments.
  • Phil has been in the private equity world for about 30 years, coming from the opposite side of the table raising capital.
  • He knows what it feels like to convince an investor that your business is worth their time. So, empathy, is critical and it allows owners to get comfortable with Seacoast.

Ensuring a Good Fit

  • They focus on good management teams and incredible, capable leadership.
  • As non-control investors, they ensure a good fit with the management team. The relationship evaluation is very important, and it’s also in the company’s best interest to partner with somebody they respect.
  • They spend a lot of time upfront assessing the management team to ensure that they’re willing to listen to ideas so that when they close, they all hit the ground running headed in the same direction.

Not a Cookie Cutter Approach

  • They don’t take a cookie cutter approach to investment analysis or portfolio growth. Some portfolio companies have grown organically, without a single add on, others the opposite or a hybrid.
  • It’s a combination of what each company’s management team believes they need, and Seacoast’s experience. They evaluate and recommend according to each business’s strategies and operations.

Red Flags or Roadblocks Seen

  • They must have a good working relationship with open communications. They are willing to listen to everyone. Not being on board with an articulated plan of attack can prohibit growth and foster mistrust.
  • An over-leveraged balance sheet or too much debt. Seacoast puts less debt on a business than a traditional private equity buyout. They want the management team to have room to implement their operating plans and take advantage of opportunities as they come along.

Pandemic Results

  • Some portfolio companies had a tough time, others are treading water or benefited from the pandemic.
  • One was essentially shut down because customers were not allowed to enter. But the CEO was savvy enough to sign up new customers and do an acquisition that may become a top performer.
  • A last mile logistics company did gangbusters and their biggest concern is finding employees. A packaging company specializing in hard to handle liquids also did well.
  • A brick-and-mortar behavioral health business discovered Zoom and found their counseling patients were more likely to show up. Now they’re reassessing all their leases.
  • Now, when they evaluate investment opportunities, they assess how each company has been impacted and what the company will look like post pandemic.

Leveraging Third Party Organizations

  • As a small company with limited bandwidth, aligning with deep functional or industry expertise like Chief Outsiders has makes a lot of sense.
  • Seacoast provides oversight, direction, and insight to the people involved.
  • Just to close on a transaction, you need third party attorneys or accountants, environmental risk assessors, or insurance assessors, etc.
  • Seacoast does industry studies, pays for third party studies, and post investment, works with firms like Chief Outsiders on sales and marketing projects, technology implementations, executive search, etc.

Keys to Increasing Company Performance

  • Having no specific formula where A plus B plus C equals D, they take each opportunity by itself, looking for a few characteristics.
  • First, a management team whose compensation is tied to future performance, so if things go sideways, people are willing to jump in with both feet to right the ship. They have helped companies establish stock ownership or options programs to ensure that.
  • Second, strong visionary leadership not in transition, which is high risk.
  • Third, differentiated products or services with premium gross margins that customers are willing to pay because they’re the best.
  • They ask, what would customers do if this company went out of business? If the customer would walk down the street for the same product or service, they’d likely walk away. ‘I would loan them money to keep them in business,’ is the type of answer they like.

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