Building a Recession-Proof Investment Strategy

Soundcore Capital Partners is a lower middle market private equity firm focused on buy-and-build investments. The firm, which raised a $350 million fund last year, looks to acquire recession-resistant, blue-collar companies in highly fragmented markets.

We talked to Frank Mancuso, VP of Origination, about this strategy, how Soundcore approaches deal sourcing in the space, and how their firm differentiates itself.

What does an ideal acquisition look like for Soundcore?

We’re seeking companies that performed well during the Great Recession and have consistently maintained healthy margins. The companies we focus on exist in highly fragmented spaces where most competitors are regional in nature.

A number of the acquisitions we’ve made are of fleet-based service businesses — essentially companies that leverage technically trained crews and specialized fleets to perform mission-critical services. We’ve partnered with pump service and maintenance businesses, municipal and commercial street sweeping contractors, and highway infrastructure service companies, among others.

How do you approach deal sourcing?

We often refer to the sourcing dynamics of the lower middle market as the “Wild West” — it can be difficult to efficiently cover thousands of sources of deal flow while simultaneously prospecting for founder- and family-owned businesses. We rely heavily on software to keep us on track. Axial alone maintains a database of over 3,000 active intermediaries, which should give you an idea of the monumental task of maintaining ample coverage.

Implementing processes to help manage the sheer number of individuals and intermediaries that we cover is imperative, so we employ a full suite of SaaS solutions, including Axial, to track, augment, and analyze deal flow and its sources. The granular data we can extract from these products helps us not only benchmark our sourcing efforts, but also informs decision-making on which industries to focus on.

In addition, while these tools are important to our strategy, they’re no replacement for good old-fashioned face-to-face meetings. I focus on intermediary coverage, so much of my time is spent developing new relationships with brokers, advisors, boutique banks, accountants, and other sources of deal flow. It’s a manual process where high-quality, high-touch relationships can pay off.

On the direct sourcing side, my colleagues automate cadenced outreach to hundreds of targets in niche industries, but they too spend a lot time attending industry conferences and taking meetings directly with owners at their facilities. At the end of the day, there’s really no substitute for picking up the phone or taking an in-person meeting.

How do you use Axial to support origination?

I view Axial as a critically important tool for developing new relationships. We attend the lion’s share of Axial-sponsored events in different cities across the U.S. to meet new intermediaries in scheduled one-on-one meetings.  We also leverage the online Axial network to drive deal flow for existing portfolio companies as well as for pursuing new industries. Finally, we regularly review live deals sourced from the network. Even if I decline a deal, I’ll try to get on the phone with the firm who shared the opportunity to create a new relationship for Soundcore. We’ve certainly had success with the network, and closed a deal though Axial in 2017 for our PumpMan portfolio company.