Reg Greiner is the founder and managing partner of Thornblade Capital, a private equity firm based in Greenville, SC.
Thornblade has closed two deals sourced on Axial to date. In November 2016, their portfolio company HKA Enterprises acquired Universal Staffing Solutions after connecting with their advisor Touchstone Advisors. In August 2017, Thornblade acquired an Orlando-based company in the food distribution segment after connecting with The Premier Business Group via Axial. Reg says Axial provides access to deals “which would take me 10x as long to find, source, and understand on my own.”
Read on to learn why Reg takes a “one investment at a time” approach to dealmaking and how a John Deere tractor once won him a deal.
Axial: Thornblade invested in staffing company HKA Holdings back in 2007. How has the business grown since then?
We’ve made nine add-on acquisitions to date. Since investing in them ten years ago, we’ve grown the business from $30 million in revenue to $250 million today.
Right now, I would say 80% of my focus is on growing HKA Enterprises. We’re aggressively building, and I can tell you we’ve have enjoyed the entire journey in building this great platform. Being the sole LP in Thornblade, there’s no timer or influence on when to enter or exit an investment while at the same time, there is no time commitment or allocation that confines how much time is spent growing HKA. This allows us complete autonomy and flexibility to exit when the markets and opportunity are right. With most captive funds, you have market timing and a fund’s investment period and expiration to contend with, which could many times prevent higher returns.
At Thornblade we believe strongly in focusing on one investment at a time. When you’re giving a family-run business your commitment to take it to the next level, how are you supposed to deliver on that when you have multiple portfolio companies and only so much time in the day to manage and affect change within a business? Is your firm really going to understand the business and grow it with your sleeves rolled up? Probably not.
Plus, being so focused on one company, we get far deeper than you would ever imagine within an industry. It’s hard not to live and breathe an industry segment when it’s your sole focus. By the time we leave, everyone knows us within the industry. Not for who we are, but for the activity we are making within the industry.
One of the nine acquisitions HKA has made to date is Universal Staffing Solutions, a deal you found on Axial and closed in November 2016. How did you come across the opportunity?
It’s a funny story — we were in the process of making another acquisition literally a few miles down the road in the same market, and a common customer and colleague, Touchstone Advisors (based in Hartford) reached out to us via Axial. We were in a meeting and they mentioned there was another staffing vendor they knew getting ready to look at strategic options.
Within an hour, I went to Axial and found the deal. Universal Staffing Solutions was located three and a half miles from the acquisition we’d just closed on. We closed 60 days later.
Now, with two companies within three miles of one another, we can deliver a very efficient organization and a much bigger book of business up in the Hartford market.
You just closed another deal sourced through Axial as well. What value do you see in the network?
We have closed two deals sourced from the network within the last year. The industry has yet to encounter a deal network that rivals Axial.
The industry has yet to encounter a deal network that rivals Axial. You have data analytics, you have data reporting tools that report deals that happen, but no one has taken the time to build a true deal network that protects the integrity of deals being presented and the platform that can monitor, procure, and collect the deals. Axial knocks it down at every level.
Furthermore, the people at Axial actually can talk corporate finance and know how to interpret and listen about deal dynamics and deal types, and really ask questions when they aren’t 100% sure about something. Other broker networks and deal exchanges are like Ebay auctions that allow anyone to review and submit an offer, but no platform delivers value like Axial. The other networks are “voiceless” — they provide very little analytics and have yet to prove the depth and extensive network that Axial has developed. Axial has all the main players and then some to round out every industry set and cover the entire private equity community. Deal flow, credible deals, and the extended outreach is the beginning. Having the people to interpret and deliver results is where you bring closings across the finish line. That’s Axial. Good luck finding another platform like it. As a very early Axial member, I can’t tell you all the progress that has been made. The most exciting thing is waiting and seeing what is in Axial’s future.
How do you differentiate Thornblade when meeting and negotiating with business owners?
I’ll give you an example. HKA was looking to acquire another company up in Connecticut. It was a competitive process. When all was said and done we came in third on value among the other potential buyers.
But then the owner looked at us and said, “I’m going with HKA.” Everyone was kind of shocked.
Why did he choose us? The owner was retiring, and during our conversations, he’d mentioned that he planned to spend his time playing around on his tractor and working his land. So what did we do? We went out and looked at the best-of-the-best tractors out there, the Cadillacs of John Deere tractors, and we put one in the deal structure.
Of course it wasn’t just about the tractor. The owner liked that we’d listened to him.
What’s your philosophy when it comes to business development and creating relationships?
A lot of it is about being patient and looking at things from a long term perspective. For example, we looked at another potential acquisition for HKA back in 2005. It was a $100 million business out on the West Coast. Once we dug in, we realized that the business was not ready to be sold. Their investment bank was really misrepresenting them. The financial reporting was way off, and they were accounting for a few items wrong and was a big deal in the staffing industry.
I said to the management, “Guys, you’re never going to survive due diligence with anybody like this.” I suggested they change their controller and told them their investment bank really should have addressed all of this in advance.
The investment bank had the company under an engagement agreement for the next four years. But we followed up with them once a year or so to see how things were going. And when their engagement expired in 2009, they came back to us and said, “We really appreciated you guys giving us all that advice. You were absolutely right. Would you be interested in buying us again?”
After that, we worked out a deal — since we’d done the previous diligence and just needed to get some new information, we put a 60-day timer on it. We proposed putting $50,000 in the middle of the table — if they walked away, they paid us $50,000, if we walked away, we paid them $50,000. We closed 60 days later.
What’s the most satisfying part of your job?
The accountability is on my shoulders. When I walk in and tell an owner, “Here’s what we’re going to do with this business; here’s what the plan is” — the accountability lies with me and my firm. That’s it. If we lose, I know I’m going to brush myself off and get up the next day and start all over again. Not having to push off accountability or look for reasons it went wrong in other people. I like the confidence of being able to sit down with a selling shareholder or business owner and say, “Listen, when you need something, you call my phone. It’s on 24/7.”
That’s what’s different about being on Wall Street vs. being at your own firm on Main Street where you’re the only LP. On Wall Street they have so much money to put to work that they’re starting to forget the whole purpose of the business. The private equity business is not about how much money you can put to work in a business. It’s about how much value you can build. If a selling shareholder leaves 20% in the business, and I acquire 80%, I want their 20% to be worth more than what I paid them for the initial 80%. If we’ve done that, we’ve done really well.
Axial provides access to deals which would take me 10x as long to find, source, and understand on my own.In the end, I look at private equity as a team sport. There is a lot of value being put on your teammates to ensure you achieve that win. One teammate is the selling shareholder, who is putting their faith and confidence in you to take on a business they spent years building. The other teammates are your operators and the people at your firm, who are working to achieve superior returns for everyone involved. Axial is another one of my nested teammates which provides opportunities and access to deals which would take me 10x as long to find, source, and understand on my own. That part of the process is the first step in looking for great outcomes.