Discussing Consumer Focused Private Equity with JPB Partners

Open Restaurant Plan

Throughout our day-to-day we have the privilege of speaking with private equity investors across all sectors, from consumer-focused companies expanding franchises to software companies selling to the enterprise.

As often as we can, we try to collaborate with these experts to gain a deeper understanding into the opportunities and challenges in their particular sector, whether those be market opportunities for their deal teams or ways their operating teams are driving value within their fund and portfolio companies.

Last week one of our founders, Sean Steigerwald, had the opportunity to sit down with one of the experts in consumer-focused private equity, Jim Bolduc, senior managing director at JPB Partners, for a quick conversation on the state of things.

Jim joined JPB in 1997 and has since been the principal architect of JPB’s consumer-focused private equity operations. JPB Partners is a control equity investor focused on lower-middle market companies located in the Mid-Atlantic, Southeast, and Midwest US and benefiting from the consumer economy.

They have invested in consumer products like St. Joseph, restaurant groups like Mulligan’s and The Greene Turtle, and specialty retail chains like Ticknors and Zips.

Sean Steigerwald: What would you say is unique to investing in franchises vs other types of businesses?

Jim Bolduc: The uniqueness of franchising investing is that the investor must be aware that to be successful, you will lose money for the first few years.  You need to invest in your infrastructure (FDD, training, sales, marketing, construction, etc.) before selling franchises.  Any sophisticated franchisee is going to want to see, meet, interact with the support team that he is paying 5 or 6% of revenue annually for.  And that means you need that in place before you start selling.  A corollary to this in the PE world is that your deal lifecycle will be longer than your typical deal (6 -8 years vs. 5) as you need to (a) build the infrastructure, (b) sell franchises, (c) have those franchises open and earning revenue so you get your 6%, and (d) then you need scale to grow your corporate EBITDA.  And all of that will take time.

What do you look for in franchises when making an investment decision? 

Strong brand.  Proven concept (to be successful the franchisee must be able to make a living, so unit economics are important).  Understanding the “secret sauce.”  What makes their product/service unique.

What are a few things that have changed from when you first began investing in franchise businesses to today? 

Regulations and labor laws.  Your internal costs keep rising and your ability to closely interact with franchisees continues to  be limited.

Generally, how do you think of yourselves at JPB Partners, what makes you different? 

For us it is an operational-orientation.  We work closely with our portfolio company CEOs to focus on strategy, structure, systems and people.

What is your typical initiative when you first make an acquisition? Is there a common theme, something that you consistently find yourself improving?

Specifically what we do is dependent on the company, the market, the opportunity.  In every deal, during diligence, you are building your 100-day plan as well as your 5-year plan.  At the time you close, you need to know where the “low hanging fruit” or “quick wins” are.  And you need to know where you are going (or trying to get to) in five years to achieve the targeted returns for your investors.

What’s your view of the current M&A market? 

Crowded, overpriced, too much money, chasing too few deals.

What’s the most surprising thing you’re doing as of lately as an investor? 

Much more co-investment and partnership (less than 100% ownership) deals.

What is your go-to source for information? News? New technology? PE-updates? 

Various.  The key is to read, read, read and be exposed to as much as you can.

What do you think is the next big innovation to hit the consumer model? Any major changes you anticipate within your businesses? 

The internet will certainly disintermediate the sales and development process.  It may not be innovative, but there will be new models introduced that address growing regulation and concern around joint-labor status.

What do you think is the next big innovation to your firm specifically? Any technology you’re leveraging to aid your day-to-day internally? 

The next big innovation in the PE space will be in the area of how the partnership is structured.  It needs to address fees, transparency, longer-duration on certain deals, and LPs looking to be more active.  Passive, 2 and 20 is really only going to exist (and not with those fees) in the bulge bracket where an LP needs to put to work $100M and can only be passive.

Thank you to Jim Bolduc of JPB Partners for participating in this conversation with us. If you're a consumer-focused company seeking a private equity partner, reach out to Jim and his team by visiting their website.

Malartu helps private equity investors streamline their data aggregation and reporting from franchisee to LP.

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FinanceSean Steigerwald