David

Tell the ISCP Club a little about yourself and your firm and your experience working with the independent sponsor community:

I’m Eric R. Korsten, a Senior Managing Director and an investment committee member at Branford Castle Partners, LP. I’ve been with the firm since 2011. Previously, I was a middle-market investment banker for a number of years. In my current capacity, I’m one of the senior partners responsible for managing a number of our platform investments, both in our first fund, Branford Castle I, and in our newly raised fund, Branford Castle II, which was launched at the end of 2019. We are a true generalist firm, which means that we look at a lot of different industries. Typically, they are niche industries and the companies tend to be smaller, with an EBITDA range of 2 million and 15 million. We look for companies primarily in the United States and Canada, although we would consider other English-speaking countries. Most recently, I led our investments in Pulse Veterinary Technologies, a leading niche veterinary product company, and ABC industries, a leader in industrial ventilation.

My experience with the independent sponsor community goes back fairly far. I started looking at opportunities with independent sponsors as far back as 2012, so I've seen the industry develop nicely. It’s gone from a fairly small group of people to now, in some markets, it’s really mainstream. I’m excited to participate in the continued growth over the next decade.

What projects are you currently working on: 

We are currently working on a decent number of interesting projects across a wide array of industries and geographies. Given that we have a newly raised fund, we are pushing quite hard to deploy our capital into appealing opportunities. Among other projects, we are actively pursuing niche market-leading manufacturers, healthcare services (without reimbursement risk), and special situations. We have had great experiences partnering with existing management and helping them and their teams build meaningful personal wealth upon our exits. Our goal is to take already strong businesses and make them even better.

What are you currently looking for and who is your ideal investment partner: 

We are always open to reviewing appropriate new investments and sincerely welcome the opportunity to start a conversation and build relationships with independent sponsors. The ideal investment partner should ultimately add meaningful value to the investment based on their respective experience and skills. We endeavor to have highly collaborative board meetings and prefer partners who feel the same way. Ideally, we want partners who are interested in forming long-term relationships where we can do many successful investments together.

What do you think about the longevity of the independent sponsor model? How has or will the availability of capital for independent sponsors change, especially considering the pandemic:

For the right kind of person, the independent sponsor model has a lot of longevity and upside. The number of networking organizations focusing on independent sponsors continues to grow and there is no longer the basic question of what is an independent sponsor. This is a definite improvement over the past five years.

In terms of capital availability, especially during the pandemic, it really depends. On the one hand, if you're seeking to get capital from a private equity fund that is mostly invested, it's probably going to be a harder endeavor. On the other hand, if you're seeking to get capital from a newly raised fund, such as ours, it’s probably going to be somewhat easier. My sense has always been, if there's a good deal, capital will ultimately always be there. If there's somebody good and they have an interesting deal, then we’re going to find a way to go do something that meets everyone’s objectives.

Some capital providers will only partner with an independent sponsor who brings specialized expertise to a deal and others don’t mind if the independent sponsor is more of a generalist. Where do you fall on that spectrum and why:

We want to partner with smart, really motivated people. Given that we're generalists ourselves, to say that we wouldn't want to work with other generalists would be hypocritical. If there are people who have particularly strong industry expertise, that's definitely great too. There's nothing like having somebody who has had many years of experience in a certain sector to add value to a process.

Where have you found independent sponsors add the most value to your firm at each of these stages -- as a deal source, during due diligence, and also post close:

There's definite value to be added at each of the stages of a process. If I had to pick just one particular stage, it would be at the deal sourcing stage. We view lower middle-market deal sourcing to be kind of the “Wild West” and there are always more good opportunities out there than there is good capital. As a result, having another set of eyes finding deals is a really big benefit to us. You really do have to “kiss a lot of frogs” to find a good company and so the more people helping us do that, the better. People who can ask hard and insightful questions early and then help with the initial structuring of the deal, really generate a lot of value.

Has the current environment taught you anything new about how deals can be better structured in the future:

In lower middle-market private equity, you're always learning and we’ve seen that working with smart independent sponsors, that we already know, in these more challenging times is critically important. If you’ve never done a deal with somebody, you don't really know how they're going to act in a more challenging situation. This current environment really affirms the importance and value of relationships and having independent sponsor partners who are looking for long-term relationships.

As a responsible fund manager, we've become more cognizant of the need to keep a reasonable capital reserve for the unknown, which is a way to make sure that good investments, that might stumble, have the chance to ultimately become good realized investments.

What has been one of your greatest success stories in partnering with an independent sponsor:

In the past two years, we've closed two significant deals with independent sponsors -- so two deals in two years, I'd say that's a pretty good result! Both of the deals are still quite young but I think the frequency of activity is a pretty good accomplishment.

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