On this week’s episode of M&A Masters, we chat with Ben Mimmack and Andy Waltman, Director of Investor Relations and Director, respectively, of private equity firm Baymark Partners.
Ben got his start in banking in London before coming to the US to attend SMU in Dallas. After completing business school, he went on to work in finance at American Airways before ultimately being brought on at Baymark Partners. Andy got his start in accounting, earning a CPA before moving into private equity at Energy Spectrum. He also went on to attend SMU, where he earned an MBA before being presented with the opportunity to work with Baymark.
We chat about private equity and working in the lower middle market, as well as…
- What a private equity firm can do for an owner-founder
- How rep and warranty insurance is changing
- Opportunities for minority investments
- How Baymark is going about navigating the uncertainty imposed by COVID-19
- And more
Mentioned in this episode:
Patrick Stroth: Hello there. I’m Patrick Stroth. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions. And we’re all about one thing here, that’s a clean exit for owners, founders and their investors. Today, I’m joined by Ben Mimmack, director of investor relations, and director Andy Waltman of Baymark Partners. Baymark Partners is a Dallas-based growth-oriented private equity firm acquiring growing middle market companies, providing owners with liquidity and resources to accelerate growth. Gentlemen, welcome to the podcast. Thanks for joining me today.
Andy Waltman: Thanks for having us.
Patrick: Now, before we get into Baymark Partners, let’s set the table and get a little context for our listeners. We can start with Ben here, but Ben and then Andy, tell us what led you to this point in your career?
How Ben and Andy Wound Up With Baymark Partners
Ben Mimmack: Well, Patrick, I grew up in the UK. You may be able to tell from my accent. Although I’ve been in the US for 10 years now. So I feel like it’s starting to disappear, but I did grow up in the UK. I went to university and law school. I was very briefly a practicing attorney. And then I worked in banking in London for several years before I came to the US and went to business school in Dallas at SMU. You’ll find there’s a very strong SMU presence at Baymark Partners. And in fact, when I was at business school, I interned with David and Tony at Baymark Partners in the early days of the life of the firm.
After business school, I went and worked in finance at American Airlines and spent the last five years of my time at American in the investor relations team there. And then when I was looking to do something a little bit different than big company, public company investor relations, the guys at Baymark called me up and said would you be interested in doing some work for us? And I jumped at the chance and I’ve been in Baymark since November of 2019. So I’m still relatively new to the PE space, but I think it’s fascinating. The kind of work we do is really very interesting. And I’m delighted to be on board.
Patrick: So it was a safe change from loss of airline miles you were getting to having your feet on the ground.
Ben: Yes, it’s more like real life, I would say. But given what’s happening with the airlines right now, you could say it was a very lucky escape.
Patrick: Very good. Andy.
Andy: Sure, sure. So, I would say I have a not a very typical background for private equity. I started my career, I came out of Trinity University about 11 years ago now. I came out with more of a typical accounting degree. Went down the Big Four path. I started at Price Waterhouse Cooper. Spent two years there in the audit and tax departments. Got my CPA, but I realized that public accounting world was just not for me. I was very fortunate. I got an opportunity early with an oil and gas private equity firm, Energy Spectrum here in Dallas, which was a fantastic firm.
I was there for five years. That was a smaller, about a billion, about $2 billion of assets under management, smaller firm and employee size. So I think we had about 20 professionals and I was in the financial reporting group there, but because of the size of the firm, I was able to do a lot there. And after a good again, five years there, I decided I kind of wanted to get out and do a little bit more of a wide range of investments rather than just purely midstream oil and gas.
And so I also went to SMU while I was still at Energy Spectrum. I got my MBA there. And then I went and found the opportunity with Baymark. And I’ve been with Baymark now for just over four years at the director level and I’ve been helping from everything from due diligence, acquiring companies to continue to work with those companies and our kind of portfolio development process.
Patrick: One of the things that I like to learn about what I’m meeting private equity firms is the founders are a lot more creative than in other industries such as the law or insurance. In those companies, they usually name their firms after the founders. It’s very boring. No creativity whatsoever. You can tell a lot about a firm by how they named itself. So, you know, tell us about Baymark Partners, how did it come up with its name. Give us a quick profile.
Ben: Sure. Well, Andy and I had to go back to our founders, David Hook and Tony Ludlow and ask them because we weren’t around when the company was named. You know, I think the true process might even be lost to history. They had to think about it for a bit, but I think it’s connected to the fact that David Hook, one of our founders grew up in Bay Village, Ohio.
So that’s probably where the bay came from. And he spent a lot of time in the Bay Area when he was a VC investor in the 80s and 90s. So it’s kind of a reference to those two. And I think, you know, they just wanted to make their mark when they set out. So you know, that’s where Baymark came from.
Patrick: And then the area that you guys are focusing largely is middle, lower middle market. Tell me about the area that you target there?
Baymark’s Primary Market Focus
Ben: Yeah, I mean, I would say we’re a middle market firm. Probably if you want to refine it further, more of the lower middle market side then true middle middle market. But any company that two to $10 million EBITDA ranges is really in our sweet spot. We like margins of north of 10%. And, you know, really in terms of what we’re looking for in industries, we love services companies, we love tech-enabled companies, distribution companies, light manufacturing companies, you know, health care, anything in that kind of region.
But really, we’ve pretty industry agnostic. I’d say the only things we really want to take a look at our hospitality, restaurants and brick and mortar retail. Everything else we’ll at least take a look at. And I think, you know, certainly, David is very much a deal-focused individual. There’s no company out there that he at least at first glance doesn’t think he can make something interesting or do something interesting with. so we look at a lot of potential transactions, we throw them back and forth to each other and spitball whether we can make something happen.
And that’s, for a lot of us, probably the most interesting part of what we do. And, you know, we like the lower middle market for a number of reasons. You know, the companies that are populating in the middle market really are the bedrock of the US economy. You know, these companies that just provide 10, to, you know, 20 to 30 jobs in their communities that that do very interesting work to fill, you know, unheralded niches, a lot of times that you don’t even think that companies are required to fulfill. They do this work and in many cases, they’re entrepreneur-owned businesses that are looking to take the next step.
The people who run these companies, they know that they need to expand and grow and diversify, but they just don’t know how to do it. We love those. We love those kinds of companies because they have a lot of potential. And in many cases, they’re small enough that the inflation, the valuations are not as inflated as they are in other parts of the market. So we feel our knowledge and markets we look at, we can get some very, very interesting and good deals in the segments that we plan.
Patrick: Well, and there’s also a lot more lower middle market companies and unicorns out there. There are a lot more unicorns that people think.
Ben: That’s very true.
Patrick: I sincerely believe, and the reason why I reached out to you specifically is because if you want to make a difference, okay, the place to do it is in the lower middle market. And it’s sizable and it does as you say, it’s filling a lot of needs out there that otherwise wouldn’t be filled. People won’t even know they were there.
But they play key roles in their communities. They play big contributions for the lives of a lot more people than you realize. And it’s just not fair because if these smaller firms, they hit a ceiling, they don’t know where to go. And what happens often is they’re going to default and pick up the phone or reach out to a brand name or the institutions out there. And that is just a recipe for failure for them.
And, you know, and I mean that in a big way, because what happens is the larger institutions are scaled up, they’ll have limited solutions for smaller clients, they’re going to overlook them, they’re not going to be responsive. Whatever solutions they do provide may not be a fit because they don’t have the bandwidth to offer multiple solutions that could help fit a smaller firm’s individual needs. On top of all that, they’re going to overcharge them.
And so they will get less and pay more. And I have a real passion for the entrepreneurs out there and the people that started with nothing and created tremendous value. So anybody that’s out there to help get them to the next level and make them multiples of where they wanted to be, that does nothing but good. And the more that we can go ahead and highlight the presence of organizations like Baymark Partners, all the better. And so we’re both on the same page there. Let’s talk about some of the things that a private equity firm can do for an owner or founder versus what a strategic perspective suitor might bring.
What Sets Baymark Apart From the Competition
Andy: Sure, sure. So this is, again, this is Andy. To talk about that, you know, we’re usually, I’ll kind of talk about what Baymark can bring and, you know, each private equity firm is going to be slightly different. And I think where Baymark is unique in relation to other private equity firms is our background. We just have for such a small firm, we have a very eclectic group of different backgrounds. I think we might have mentioned one of our founders, David Hook, had a lot of success out in the venture capital world.
He spent 25 years investing in companies out there. I think he invested in about 50 startup companies from sometime around the mid-80s to the mid-2000s, the OSS, I guess they’re called. And about 14 of those ended up going IPO and going public. So he has a lot of experience of, you know, those are even earlier than, you know, lower middle market.
Those are even smaller, you know, startup venture deals. And so he has a lot of experience, you know, growing companies, looking at the big picture saying, Hey, we’re here now, you know, how can we quadruple that in five years? And so, you know, we’ve had, you know, one company that had a great management team in place. We’ve had, you know, some companies that really need some other pieces, but we had one company we bought that had a really great management team in place. We don’t really have to make any tweaks there. The big thing that was missing there is just the vision.
They just didn’t have the imagination. We bought this company, they were about, you know, 12, 13 million dollars in sales and $2 million of EBITDA. And today they are closer to 60 million in sales and six and a half million of EBITDA. So I wish I could say all of our deals look like that. But that was an instance where they would say, okay, what’s the plan? What’s the vision? And now let’s actually go out and execute that. And while I’ll give David and Baymark credit for helping with the vision, I will say that company had a great team and they executed it very well. So that’s one example.
Our other founder, Tony Ludlow, he has a very eclectic background he has, he was an attorney for some time. He’s also a CPA. I think what really made him ideal for this world is he has a lot of operational experience. So he knows what it’s like to have a team of people working for him. You know, what it means to, you know, have to fire people whether they deserve it or not, whether it’s just something that has to be done, we have to cut 10% even if they don’t deserve it, you know?
So he’s had to live through that. He really has had that hands-on experience that a lot of entrepreneurs face on a day to day basis. And so he doesn’t have that just kind of pure spreadsheet mentality of like, Okay, this is what the spreadsheet does, we’re going to do. He knows, he understands that there’s a human element to this. And so I think starting with those two guys, that’s kind of spread through the culture of our firm that we don’t just have a spreadsheet mentality.
That we really try to understand what these entrepreneurs are trying to do and help them achieve those goals. But back to some more about kind of what the, what we can bring as a private equity firm, I think it depends on the company. We’ve had some companies where, a lot of the companies we work with we see this, where we have an entrepreneur who’s trying to wear every single hat in the business.
You know, when we want to talk to the accountant, we talk to the owner. When we want to talk to the operations manager, we talk to the owner. When we want to talk to the CEO, it’s the owner. And so, you know, we try to come in and say okay, what are you passionate about? What are you good at? You’re obviously a sales guy. You know how to sell. You love working with customers. And every time I talk to you about the accounting you, I can see you pulling your hair out. So let us help you.
We’re gonna bring in an accounting person, a CFO, you know, someone that can augment you, help your company, but we’re not looking to replace the entrepreneur. We’re not looking to bring in a whole bunch of people to kind of replace what he’s trying to do. It’s more of a, let’s take some things off that entrepreneur’s plate and really, you know, build out his team so he can focus on what he’s good on and we can have other skilled people in position to help build that company. Some of the things we’ve done with companies, we, you know, we obviously have kind of some of the typical benefits.
We have, obviously, access to financing, we have good relationships with banking. And Patrick, as you mentioned, you know, while we’re not a big firm at Baymark, we do work with I think, right now we have about nine portfolio companies in total that we work with. You know, we have scale in that regard, right? If we’re trying to negotiate new insurance terms we say Hey, we, you know, we’re looking to make these changes for a lot of our portfolio companies. And so that’s something, you know, we can get better deals because it’s not just a single small company doing it.
Sometimes it’s a whole portfolio companies who are looking to make a change. Or also act as an outsourced m&a department for our companies. We think the best way to grow a company if the owner thinks that we need to go out and make some acquisitions, we go out, we work with the brokers. Our network of brokers, business intermediary, then try to go find those acquisitions that fit the goals that we’re trying to do with our company. So each company is different, depending on what that company is, we try to help fill that hole, whether it be us or with adding people. So
Patrick: What I see there is you’re flexible enough where the portfolio company, particularly if they’ve got good management or whatever, if they need some day to day help, you’ve got resources there, or if they just want to be left alone, just get him some capital so they can execute more and then find other targets for growth. You can do that?
Andy: Yes, yes, while we do have operational experience and we’re comfortable in that role, that’s never what we’re looking to do because we have such a small firm, you know, our goal is to kind of set the plan and, and have the management teams execute that plan. But we do have the comfort to go in and be more hands-on if that’s what’s required. But again, it’s usually the ideal if we can, you know, help with the vision, help with the strategy, get the right people in place and then we try not to micromanage and let the companies execute the plan.
Patrick: Describe your ideal target. What are you looking for either, you know, as a portfolio company or for, you know, a partner to exit one of your portfolio companies? Either way.
Ben: Yeah, I mean, I can take this one and I think I addressed it earlier a little bit when I said, you know, we like the services, tech-enabled, distribution, manufacturing part of the world. You know, I can kind of go into a little more depth on that, but we like what everyone else likes. We’d like established and recurring revenue streams, we like to diversified customer base and higher retention rates and a competitive advantage, a nice moat, company based in part of the world that’s easy to get to. So all the usual requirements that everyone wants, but certainly I think we are willing to look past perhaps some issues that other firms may not be.
We certainly, as David is certainly more than once, we like companies with a little bit of hair on them for a couple of reasons. One, I think, as Andy mentioned, we have the expertise in our firm, I think to deal with issues that maybe other firms aren’t comfortable dealing with. And second, you know, you can often buy a good company for a very reasonable price if there is some issues that, you know, other people have been a little bit scared of. So, you know, and we’ll look at any of those companies that we think we can do something interesting with.
And I think one of the things that Baymark does a little bit differently than other companies and one of the other reasons we play in the lower middle spaces, if you can buy a company with a good multiple, then you don’t have to load it up with a huge amount of debt and then spend your whole time trying to pay the debt off before you exit the investment. We like to grow our companies. And it’s a lot easier to grow a company if you bought it for a more reasonable multiple and haven’t had to load it up with debt. So we’re certainly always looking for companies we can grow.
That’s how we like to make money is to increase revenues, increase profitability of our portfolio of companies. And then, you know, we like to send out companies on the way into the world, in better shape than we bought them. We’re not interested in buying a company that someone has spent years and years building up and then, you know, taking all profit and leaving it in a bad state. We want to buy a company, improve it, grow it and then sell it. And if we can make money doing that, then we’re very happy and if the company is better for having been owned by us, then that’s great.
Patrick: One of the big trends that’s out there nowadays is deals are now being, the rest is being transferred out through the use of rep and warranty insurance. I’m just curious because now the eligibility requirements for rep and warranty have come down from middle market down to lower middle market deals are now eligible. Tell me good, bad or indifferent, what kind of experience has Baymark Partners have with rep and warranty on any of their deals?
Where Rep and Warranty Can Be Beneficial
Ben: So we’ve used it on one occasion with a deal that we did actually quite early in the life of Baymark. And the reason we used it is because there was a kind of an asymmetric risk profile between the sellers, one of the sellers was going to take a lot more risk with the representations and warranties. And he wasn’t comfortable kind of being point man for some of these reps. And so we use the insurance as a way to kind of even the playing field amongst all the sellers.
So, you know, in those circumstances where you have a kind of asymmetric risk profile, then it works out very well. One of the other reasons we like it is, you know, it removes the escrow requirement. So that can be a way of getting a deal done that can be something that stands in the way otherwise. So, yeah, absolutely. We think there’s a place for it, where appropriately, we absolutely will use it. And certainly, you know, have had positive experiences with it in the past.
Patrick: Now, that was my second deal I ever did. That’s the exact scenario we had. We had a tech company that was being acquired by a publicly-traded company. And the tech company, you had one investor that had the lion’s share of the risk and you had 10 other investors, but their shares were so much smaller that that one lead investor, he was the deep pockets.
And so he was directing that. And fortunately for us, we had a very affable working buyer that agreed to go forward with rep and warranty to help out the seller because they wanted to make them happy. And, you know, it was simple. The seller paid for the premium, was happy to do it, the buyer was happy to not have to cover that expense but had a very happy acquisition target and the team came over. And it went very well.
So we can see that was been fortunate. The development that we’ve seen come through is not only is rep and warranty available for the sizeable deals but now it’s gotten to the price point where it’s not a bad idea for add ons. And so now as more frequent transactions are happening with add ons, if there’s that tool for an add on and that brings, you know, some cost benefits there’s another usage for it. So we like to trend as it’s going and we expect to see it become about as common as title insurance in real estate.
So as we record this today, we’re hopefully on the downside of the COVID-19, settle in place. You’re based in Texas and you’re on the verge of opening up. We’re in California. We hope to open up sometime next year, the way things are going. So give us your thoughts in the next 60 to 90 days and next quarter, what do you see is M&A trends either for Baymark partners or you guys, you know, getting yourself all geared up to get, you know, hit the race, or get out and start unboxing sprint or wait and see. What are you seeing out there?
Andy: Oh, that’s a good question. Right that, we’ve heard that question a lot. And we’ve been asking ourselves. We kind of talk about it weekly. And I would say it’s still early. We’ve actually had we’ve had to had kind of some deals in all parts of the pipeline that have been affected by this. And so we’ve had a couple that we were pretty far along in the process and we’re still trying to complete those deals, even with some of the uncertainty, we’ve been trying to monitor the company’s performance in this time and just trying to get an understanding of the core business and what, and how it’s, you know, how it’s navigating these times.
And so I would say right now, a lot of the lenders have been slow to react, or have been kind of, I guess, getting a little tense and a little tighter, which is understandable and something we would expect to see in this market. But we are working with some lenders who are still doing deals.
And another thing that slowed down some of the lenders we work with is obviously some of the banks we work with have been kind of underwater, trying to process some of these cares, PPP loans. So a lot of factors that have been, I would definitely say slowed the process down. But we still have, I would say pretty good visibility on a couple opportunities that we think will close over the next few months. You know, as far as new opportunities that we’re looking at, we do see some sellers who are still very interested in selling. They’re very confident in our business.
And I think the private equity firms that are going to do the best are going to have the ability to get a little creative, you know, build relationships in this time. I think, starting a deal from today and trying to buy it, it’s going to take a little more time than it normally would, but it’s important. You know, we’re really trying to build relationships with the companies, with the owners, try to keep expectations in line and do what we can to, if the company does go off and has a blip because of this, because of the Coronavirus, we try to do what we can to say, okay, we’re going to give it some time, see if it comes back.
Or, you know, develop some kind of creative structure where, you know, the seller’s still getting kind of what they wanted for their business even if they’re being slightly affected by what’s going on. So, you know, I think for now, it’s going to be a little bit of a slower process, but we’ve definitely been talking with again, other firms, other lenders. And deals are still going through, deals are still happening, just a little bit of a slower pace.
Patrick: With the result of this pandemic, it wasn’t a situation where we had a structural fiscal problem or something with the banking and the financial infrastructure here as opposed to 2008, 2009. So I think that even though you’ve got this headwind of all this activity for lenders right now, I think eventually they’re going to get back to what they usually do. They’ve got the resources to do it. I think that the one thing that’s been said about private equity for the last four years is they’ve got their stack of dry powder and it hasn’t gotten any smaller.
So I think as target prices start coming down and valuations come down a little bit, there could be some opportunities to move quickly if organizations are clear in their thing and what they want, and they’ve got a willing partner on the other side of the deal. I think we could see an uptick in activity. Maybe not immediately. However, I think as things start coming back to normal, there are some that are going to lead the trend and lead the activities and then others are going to be needing to catch up. And so that kind of activity can kind of build upon itself and get us a little momentum. So that’s an optimistic side from my perspective.
Ben: I know for one Baymark is very, very keen to continue doing deals. So, you know, we certainly see, you know, an opportunity in the next few months.
Patrick: Well, there are people out there that maybe wanting to reach out you to have that kind of conversation. Ben, Andy, how can our listeners find you?
Ben: So we’re on the web at baymarkpartners.com and we’re very easy to contact by email. I’m firstname.lastname@example.org. Andy is Andy@baymarkpartners.com. So, you know, we are always available to chat, to have an email exchange if you are interested in what we do and want to learn more. We’re happy to talk.
Patrick: Gentlemen, thank you very much. Absolute pleasure meeting you. And ladies and gentlemen, please look out for Baymark partners.
Ben: Thank you.
Andy: Thanks a lot, Patrick.