In the always changing, highly-competitive private equity world, what makes InTandem Capital Partners stand apart?
InTandem invests in – and helps accelerate the growth of – small to mid-sized companies in select health care and insurance services sectors.
But what sets them apart isn’t what they do – it’s how they do it.
The team is comprised of former business executives and experienced investors uniquely qualified to provide strategic, acquisition and operating expertise to help companies in the healthcare sector significantly increase value over time. They provide active support to management of portfolio companies directly, and provide access to a network of operating partners and industry executives. Their goal: To build excellent businesses of significant value working collaboratively with management team partners.
So what, exactly, is the InTandem approach?
In a series of conversations, InTandem Managing Partner Elliot Cooperstone will discuss what it means – how the firm builds and maintains trust with management, intermediaries and all key players, from before a deal is ever sourced, during due diligence and investment, and all the way through the lifetime of a portfolio company’s growth.
As you’ll hear from Elliot, they offer a team of on-field player coaches who are there, 24/7, with and for management teams and their companies.
Yes, it’s a differentiated approach. It’s the InTandem approach.
Elliot Cooperstone
Transcript: Elliot Cooperstone
Chris Riback: Elliot, thanks for joining me. I appreciate your time.
Elliot Cooperstone: My pleasure, Chris.
Chris: We’re going to get into the details, of course, but let’s start with the overview. Give me the elevator pitch. What’s the InTandem approach?
Elliot: Well, InTandem is a private equity investor. We invest in a select number of middle market healthcare services companies. Our approach is to work very closely with the management teams of the companies we invest in to help them professionalize the company and build the infrastructure that’s necessary to help those companies accelerate growth.
Chris: Why do you feel the need to bring a differentiated approach to private equity?
Elliot: Early in my career, before I was a private equity investor, I was an operator, and I worked in some companies that had private equity sponsors. So from the other side of the table, I saw opportunities to improve the value proposition of a financial sponsor. I felt all too often, that the sponsors of companies I was in didn’t understand what we were doing on a day-to-day basis sufficiently well to add all the value that they could.
“We are financial sponsors and partners to entrepreneurs who are building the great American success story.”
Chris: Let’s go a little bit deeper in terms of the “differentiated approach” you bring to private equity, because my assumption is that it occurs even before you’ve made any type of investment, in terms of how you even think about which companies you might want to invest in, all the way through the investment process and afterwards. So, let’s start at the beginning. How do you approach that process, and how do you think about the companies you might want to invest in?
Elliot: First, we are very much sector driven. So we will identify, on our own, subsectors in healthcare services that have a particular interest to us. We will develop an investment thesis for each of those subsectors, and then we’ll hustle in those subsectors to learn everything we can about them. While we’re doing that, we’re refining our investment thesis. But we’re also trying to find an entry point. The work that we’re doing is not simply working with potential intermediaries for transactions. We are meeting with management teams, with recruiters, with software companies, with compliance organizations – anybody who’s part of the ecosystem of the subsector that has interest.
And along the way, we will perfect our investment thesis, and we will either muscle our way to finding that right entry point, or we’ll come across somebody who says, “You know what, there’s somebody I know that you really need to meet, and they’re a terrific organization.” And that is typically how we get started with an investment in the subsector. What we’re not doing is waiting for bankers’ books to come in and just willy-nilly going to different management meetings. We’re very much writing our own agenda for how we want to find investments, and in which sectors.
Chris: How long can that process take for you? I mean, do you kind of have your eye on certain companies, and you pull the trigger, to exaggerate the point, at a moment’s notice? Or is this kind of an ongoing, iterative internal process where you are learning, researching, talking, learning, researching, talking, asking questions… and it can really become more of a thorough, ongoing process?
Elliot: It’s more of a longer-term, iterative, ongoing process. However, the length of that process really varies dramatically. We’ve identified subsectors like primary care, where we have quickly found a company. And within days of identifying the company and meeting the management team, we’ve struck a deal to enter that sector. On the other hand, we’ve been very choosy and very discriminating in other sectors, where it’s taken us two to three years to find an entry point – like in the drug and alcohol addiction treatment sector, where there are plenty of companies, but very few good ones. It took us a while to find the entry point there.
Chris: Let’s talk about the sales process. How do you offer an alternative to the traditional sales process?
Elliot: We are very much a different kind of private equity investor for the seller. Our entire team has worked as operators of companies before we were investors. I think the way in which we relate to the management team is very different than had we all been, say, bankers before we were investors, as most of our competition have been. Because of that experience, I think we have a special appreciation for the challenges, and difficulties, and joys of running a company on a day-to-day basis.
And I believe that that very ability to relate to what is going on in our portfolio companies, and the teams responsible for it, distinguishes us, and makes us in many cases, a better choice than traditional private equity. Beyond that, however, our ability to pitch in, and actually help to lead projects or staff ourselves on an interim basis where there is a need – our ability to, from the very first moment, roll up our sleeves, and work as extended members of the management team – I think that’s what really separates us from the experience that a seller would have with a typical financial sponsor.
“Trust really means doing exactly what we say we are going to do. It means that things don’t change from the courtship, through the closing, and into the investment. It means that our partners feel like they are truly partners on the inside with us, never on the outside being dictated to. It means that we are there as workers, and collaborators, and truly as partners.”
Chris: Do the management teams notice that? I mean, can you tell that they notice that? Does that come across in the way you all communicate with each other, the way they relate to you? Do the management teams notice, “Hey, these guys have been here before”?
Elliot: I think the management teams actually buy us because of those reasons. I think that in their selection process and decision making process, they’re coming to the view that they would be better off with us and the style that we use, ultimately, than they would in another scenario. Put a different way, we’re typically partnering with managers who have been very successful in what they’ve done. They’ve built a market leader, however defined. They’ve demonstrated a company that’s grown successfully, profitably. But they probably identify an opportunity to grow much more quickly in ways that they’ve not in the past, and they recognize that it will take more than just capital to achieve that growth successfully.
So, we’re looking for a very special type. It’s a successful entrepreneur, but who also has a vein of humility and a recognition of the importance of bringing in a skill set and experience base that may not exist in the company. In fact, why should it have existed in the company? So, it’s those willing partners that we are searching for within the sectors that we identify.
Chris: It’s got to be very reassuring for them to have a conversation and be part of a process with folks whom they feel like they can relate to, who they can feel like have walked in their shoes. At the same time, I imagine that among their priorities is to get the best price possible. So talking about that specifically, let’s begin, do you participate in broad auction processes?
Elliot: We tend not to participate as the last man standing in a broad auction process. We may enter the process if there is one going on in a subsector that we’ve identified, and we’re working in. But very often in the early days of that effort, we would make a play to position ourselves as the obvious choice. And, yes, price is important. Of course, it’s in many cases the most important factor, or I should say value. But not all the value is delivered on that very first sale. So, in most cases when we’re making an acquisition, our partners, the sellers, are reinvesting some of their proceeds in the company on a go forward basis. And very often, that reinvested amount, in a few years down the road, will be worth more than the majority of the company that they sold at the first closing.
Chris: Talk to me about the differentiation between value and price. How do you ensure that you’re offering a fair value, and how do you think about economic incentives for management and for shareholders, to keep interests aligned going forward?
Elliot: Usually, there are enough data points in the marketplace, so that we, the sellers, their advisors, all of us can determine what a fair price is at any given time. And we are always committed to paying that fair price. When the seller reinvests proceeds, they are investing at the very same price that we paid for the company, and they are buying the same stocks, same class of security, so that we are perfectly aligned with them. Beyond that, we generally create an equity incentive pool for managers. And in that way, we are creating alignment and a sense of ownership, not just for the most senior executives in the company, but for the broad executive team, so that we are all pulling in the same direction with the same interest of creating equity value in the company.
Chris: Let’s discuss another group. Earlier, you said that you don’t just sit around waiting for bankers to bring books to you – you’re out and about. You are really understanding the sector and the subsectors, and you’re talking to a number of different folks. While you’re not sitting around waiting for the books to come to you, you are dealing with intermediaries, another really important group in this process. Why would your approach be attractive to intermediaries?
Elliot: First of all, we are very happy to get the books when they come, because they may line up with sectors we’re looking in. But generally speaking, we like it when a seller is represented by a capable intermediary. Having our sellers get good advice, having them have another party explain to them what is market and what is not, is always helpful to us. From an intermediary perspective, I think it’s, for intermediaries who are pros, they will recognize companies that would have a hard time sustaining a full broad-based auction.
It is a difficult, taxing set of activities that can go on for months, and months, and months. And if the company is not really capable in that arena, if they don’t have a fully formed finance department, ideally with some experience in these kinds of processes, lots of control over really well-organized data, it could not only be taxing, it also could be destructive. I think a competent, trusted advisor can recognize that – and in their client’s best interest, would very often steer them away from a large broad process which can be taxing and destructive, as I said, and move them instead towards a much more limited process or effort to find the partner that will be best for them, while at the same time, paying a very fair market price.
“We are on the field with our team. We are not the quarterback. We are supporting members of the team. But we are on the field at the pleasure of the CEO, and we are running plays with the team. So, we are seeing risks as they develop, along with the other players. We are seeing opportunities as they present themselves, at the same time as everybody. And that, to us, is the best risk management. It’s the best way of building value in the business. And it’s the only path that we would ever take.”
Chris: Can the management teams tell, do they really feel when they are working with intermediaries who understand the situation that you just described? And what does that do for the management teams when the process can run smoothly like that? I would imagine that’s just got a make all the difference.
Elliot: Makes a huge difference. It makes their life easier. It protects the value of their asset. Very often in life, it may be their primary, or even only asset. So, it’s absolutely critical. It’s fortunate when a company has access to a network of advisors that could help them choose the right intermediary to sell the company with them. Doesn’t always happen that way, but it’s good when it does.
Chris: You mentioned, just a moment ago, a term, and I wanted to pick up on it because it’s key, of course, in life. But it’s very, very key in business and in private equity. And that’s “trust.” You mentioned it in terms of the intermediaries and the role that they can play, and the role that trust can have in the process. What does trust mean to you?
Elliot: It’s our livelihood. It means everything to us. We’ve been investing in healthcare services companies for 17 years. And I think a big part of the reason that we’ve been successful over this period of time is because of the references that are offered from past CEOs to prospective CEOs of investments we’d like to make. Trust really means doing exactly what we say we are going to do. It means that things don’t change from the courtship, through the closing, and into the investment. It means that our partners feel like they are truly partners on the inside with us, never on the outside being dictated to. It means that we are there as workers, and collaborators, and truly as partners.
It’s, I think, critical to not just the success of an investment, but to a happy life. And I would tell you that one of the differences, I think, between us and possibly other investors is that we spend a lot of time thinking about that. We spend a lot of time thinking about how the leadership team is feeling, knowing that moving from often family-owned, entrepreneurial private status to private equity-sponsored status is a really significant change. It could be frightening. It could create confusion. It could create apprehension, and even loneliness.
So, we are not just about the math. In fact, it’s the last thing we are about. We are really about building great businesses and great partnerships. But we feel very strongly that to do that, we have to provide emotional sustenance for our partners and make sure that they’re feeling comfortable, and positive, and motivated, and supported. That is a big part of what trust means to me, and to us.
Chris: Let me push you on that just a little bit. I mean, that sounds excellent, and I can totally understand why, if I’m on the management side, I want exactly what you just described. But is that good business for you? I mean, it sounds like it’s a lot of time, it’s a lot of energy. You’ve got to really put in that focus, with not just the business, but with the people behind the business. Why is that good business for you?
Elliot: It’s the only kind of business that we want. We’ve designed ourselves to follow that credo, meaning we’ve got a very concentrated portfolio of a half a dozen companies in each fund that we raise. And that gives us the ability to spend the time required to follow the model that I’m describing. But why is that so important? I’ll use an analogy for you. Hopefully, you like sports. So, I would say that there’s a lot of private equity that act like press box coaches. They are up in the press box with a set of binoculars watching their team on the field, trying to pick up the subtleties of plays as they are occurring, maybe radioing down to a partner of theirs on the sideline who could call a play onto the field.
I will tell you that they are necessarily going to wait some period of time before they truly understand the risk in the business, and the opportunities for that business. A little closer to the action would be a sideline coach. They’ve got a better view of what’s happening, but they are not stepping onto the field of play. And even they, by the way, might have an operating partner that they try and put into the huddle. But they are still some significant number of steps away from the action. We are on the field with our team.
We are not the quarterback. We are supporting members of the team. But we are on the field at the pleasure of the CEO, and we are running plays with the team. So, we are seeing risks as they develop, along with the other players. We are seeing opportunities as they present themselves, at the same time as everybody. And that, to us, is the best risk management. It’s the best way of building value in the business. And it’s the only path that we would ever take.
Chris: Is it fair to characterize you as Vince Lombardi, but with your own set of shoulder pads, helmet, and cleats, ready to run plays with the team?
Elliot: I’ll take that.
Chris: I bet you would. So, Elliot, that takes us through what I would characterize as pre-investment, and then through the sales process. Now you’re married. Do you maintain a differentiated approach? Talk to me about the post-investment period… and give me a little bit more color about what it means to be an on-field partner. The fact that you’ve been there yourselves has to really manifest itself, I would think, day to day. You’ve described it a little bit, but take me through it really clearly. What’s the InTandem differentiated approach post-investment?
Elliot: Yes, our approach of being an on-the-field coach is most valuable immediately after the investment. Together through the assessment period, we may have developed a point of view, a plan, a program for expansion. We may have already teed up some add-on acquisitions. Then the bell rings; closing has occurred. If we weren’t on the field with the rest of the team, the only difference from yesterday to today would be the fact that there’s now capital. But it’s the same group of folks who are on that day, running the largest company they’ve ever run in the past who, some, would expect to just sort of go forth with a check and start doing things they’ve never done before, to try and take those next big steps of growth.
For us, we are there to supplement them in the early days. So, one of my partners will become the interim general counsel of the company for that first year. We’ll help build a compliance program. Eventually, we’ll hire a director for compliance, possibly general counsel, and my partner would then sort of proceed into a supportive and advisory role. Same thing in marketing. We have a partner who would step in and look at the brand, look at the opportunity for expanding the value proposition, think about building a sales function, new sales training, new marketing support. Whatever it is, these are programs that typically take an intense period of time in the early days to execute on. And once that execution takes place, my partner would then pull back.
We’ll run the corporate development function in the early days while we work with the CFO and possibly hire a director of business development and a staff. And over time, the company will use our templates and our approach, and learn how to operate that corporate development function the way in which we were doing it in the early days. And then over time, they become quite self-sufficient. Our goal, our desire, is to build a really significant, capable company that is supremely self-sufficient. So over time, the types of on-the-field contributions that we make bring us a little bit closer to the sideline of maybe, a little bit closer to more traditional private equity. But that’s how we are defining success for ourselves over the course of two, three, and four years.
Chris: But never just up in the press box eating chicken fingers, right?
Elliot: Not only are we not in the press box eating chicken fingers, we really tend not to step back over the sideline. We will remain on the playing field, we just may be … we just may be sort of, a deep safety.
Chris: A specialist for particular times, but maybe not for every play.
Elliot: Exactly.
Chris: What kind of feedback do you get then, from the quarterbacks, from the lead players? That’s the management team. What do you hear from your current and previous management teams about your approach? What would they say they get from InTandem’s involvement?
Elliot: I think I hear consistently that the management teams believe that they would never have accomplished what they were able to accomplish, either on their own, or with a traditional investor. I think over time, the value of our collaboration proves itself, and I think it becomes enormously appreciated by our management team partners. Most all of them have become friends over the years as a result. Most of them have become exceptionally wealthy as a result. They have a lot to be thankful for. So do we.
Chris: I’m sure that you do. Let’s move, as well, to another aspect, because that management, that human interaction, that strategic interaction, the leadership that you offer, but also that you get in return, and in partnership with management, that all tells a very, very compelling story. At the same time, Elliot, it’s private equity. And private equity is all about the numbers perhaps too frequently, but numbers matter: EBITDA, MOIC, IRR, and more. At the same time, when done well, private equity, as you’ve identified, is about more than the numbers. So, how do you think about that balance – the numbers and the narrative?
Elliot: I think we are, at the end of the day, all here to create equity value in our company for the management shareholders that have reinvested proceeds, for the management team members that may have written checks, or are participating in our equity incentive program, for our firm, for our limited partners, everybody has that same interest in creating equity value over time. There’s no doubt about that. I think where investors, perhaps, might differ is in their approach to creating that equity value, and their belief of how that value is created. So, there may be some who believe that the value is created through smart capital structure, or through smart plans, smart budgets.
Our view is that capital structure is not what ultimately creates a lot of equity value. And it’s not about the numbers first. It’s not about the math first. It’s, generally speaking, about finding great partners who have established a terrific business that has the potential for growth, and then working with them to make sure that the team is developed in the right way, that the processes of the business are identified, and defined, and measured really effectively, and that ultimately, there’s great execution of a plan that makes sense. Eventually, the numbers fall into place and equity value is created. So, it’s, I think, just a matter of perspective. We are very much a people first, business first investor, as compared to a capital structure numbers first investor.
Chris: And will you work with the management directly on, for example, the operating KPIs? Will they come in with those already established? Because I mean, in the end, obviously, the operating KPIs are what are going to drive financial results. And so, when you’re thinking about how to measure what the business is doing well, is that an example of that partnership and that back-and-forth conversation, or is that something that management comes in, and they’ve been running the business for a while now, and they’ve got operating KPIs, and let’s just move on from there?
Elliot: It really depends on the state of maturity of the company and the kinds of business practices that they may have employed. There are some successful companies we work with who have some KPIs already developed. We would, nonetheless, work with the management team to make sure that the KPIs are properly aligned to strategic processes, and that they are being measured in a way that they are indicating value creation. We also often take a more broad approach than we might find in a company when we make an investment, in that very often, KPIs tend to be very focused on financial metrics and operating metrics. We use a balanced scorecard, so we’re always incorporating employee metrics, and patient or client metrics in that same KPIs scorecard.
I have to tell you, as well though, we’ve worked with some very successful companies who have been much more entrepreneurial, much more intuitive in their decision-making, less oriented to the data, and wouldn’t really even have been familiar with the term “key performance indicator.” And that’s fine, as well. What’s important, though, is that as we start building a company that’s going to become larger, more distributed, more complicated, that we are building systems that will be helpful to management in taking on the challenges of running a much larger, much more complicated organization. Process definition and KPIs play an important role in that effort.
Chris: You’ve led me to a perfect place to close this conversation, Elliot, which is, you’re looking forward, and the value that’s created in theory, for these companies, and for the companies that you invest in. You have described what I would characterize as an active ownership model, I mean, that you are in there. And you’ve described all the different ways. That’s a very clear model, and as you said, not every private equity firm employs that model. But that’s how you are dedicated to making portfolio businesses more valuable enterprises. Is that right? Is it your point of view that an active ownership model results in making portfolio businesses more valuable enterprises?
Elliot: Certainly for us, it does. We are, however, focused on middle market healthcare services companies. So, if you were to ask me that same question about a $100 million EBITDA company, I would say not necessarily so. At that level, at that size, I would hope that the management team is so well-established, that the processes and technology and systems in the company are so well-developed that they would have it all covered. For a smaller or mid-sized organization, there’s no reason to believe that that’s true. In fact, there’s every reason to believe, given where these companies have come from, that they could use some help in those areas. I think it’s the smart, responsible thing to do, to bring not just a check, but a lot of assistance and guidance, especially in the early days. And we are fully committed to that strategy, to that approach.
Chris: Listening to you, do you ever feel like you’re helping build, in a small way, of course, but in a specific way, the great American entrepreneurial success stories?
Elliot: I do think that we are financial sponsors and partners to entrepreneurs who are building the great American success story. I do. In fact, there are many starting points that would have been impossible for us, had we not had the ability to bring that active management style that we’ve been discussing. It’s really, only by getting involved on a day-to-day basis in some cases, that we could feel comfortable about deploying capital into a very raw entrepreneurial situation.
Most of our private equity brethren and sisters would run for the hills, frankly, because they would look at those opportunities and say, “That is way too heavy to lift. That has the possibility of sucking me in for a long period of time, and we are not set up to really take on that type of challenge, nor frankly, would we even know what to do if we had the time.” For us, we are built for those challenges. Getting sucked in is what we aspire to do. And it’s in those kinds of circumstances – the great American entrepreneurial success stories – it’s precisely those circumstances where we feel we can build a ton of equity value for everybody.
Chris: Elliot, thank you. Thank you for your time.
Elliot: Chris, thank you, too.
