Rubicon - Patrick Turner VSS Capital

Patrick Turner | Leveraging Financial and Industry Expertise to Drive Growth

In this week’s episode of M&A Masters, we sit down with Patrick Turner to talk about how his company is transforming good companies into great companies through their partnerships. 

Patrick Turner is the Managing Director of VSS. VSS is a private investment firm that invests in the information, business services, healthcare, and education industries. Since 1987, VSS has partnered with lower middle-market companies to provide management teams with capital solutions to drive growth.

Patrick says, “Our focus is on creating value in the companies we invest in. If you don’t grow [your company] you’ll lose it, you can’t stand still. We provide additions that help companies grow. Hopefully, we get involved with them and take them to a different level.”

Listen to this episode to learn:

  • What Patrick sees as the key drivers in the current M&A market and how he thinks the investment horizon is changing
  • How VSS differs from other private investment firms
  • The top 3 industries they are looking to partner with
  • His top 3 reasons for using reps and warranties in every deal
  • And more

Mentioned in this episode:


Patrick Stroth: Hello there, I’m Patrick Stroth, a trusted authority in executive and transactional liability, and President of Rubicon M&A Insurance Services. Now a proud member of the Liberty Company Insurance Broker Network. 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 Patrick Turner, Managing Director of VSS Capital Partners. Since 1987, VSS has partnered with lower middle-market companies working closely with management teams and providing flexible capital solutions to drive growth. Patrick, it’s great to have you. Thanks for joining me today.

Patrick Turner: Thanks so much delighted to be here.

Patrick Stroth: And as you started back in 1987, there were a lot fewer private equity firms than there are today. So it’s great to have our audience learn about the story of you and VSS. Before we get into VSS, though, let’s start with you. What brought you to this point in your career?

Patrick Turner: Well, first of all, I’d like to say, I think I mentioned that yesterday, Patrick is an English you can hear. But I’ve lived in the States for over 40 years, kept my accent because I worked at Barclays for seven years. But essentially, I’ve grown up in the credit markets. My whole life. I started in Bankers Trust it’s s a segment of Barclays. And then we spun out raised our own mezz fund, very similar to to VSS, small cap mid market, but generally sponsor oriented versus non sponsored. And then we were we merged into Trust Company of the West and ’05. I ran the New York office for them, and it was a much bigger entity. We ran lots of different strategies, and then left in 2012. 

I ended up with Jeff, because it was very similar. This VSS is what he was pivoting to, was very similar to what I created it with my good friend Nick at Canterbury Capital. And actually, Jeff had been an investor. So he saw what we were doing and, and it matched very much, alongside what I always enjoyed doing, which was, as you say, the middle market, which I find far more rewarding, in many, many regards. Big cap tends to be a little bit more high yield oriented in the credit markets, in other words, more superficial. And middle market, lower middle market, you get very involved in these companies, and it becomes very fulfilling when you can take them to a different level.

Patrick Stroth: Right, and with VSS, again, starting in the earlier days of private equity. You know, I’ve you’ve seen a whole change in this entire industry. So tell us a little about VSS, because I can tell, at least start with the name because unlike law firms, you didn’t even have to yourself it’s not Turner Capital. So tell us about VSS.

Patrick Turner: Well, it’s a it’s a good story. But actually funnily enough, it is named indirectly to the founders. So it was founded in 1981. By two gentlemen John Suhler and John Veronis both senior execs at media companies. Very senior. And they decided to start their own boutique investment banking firm, because there really wasn’t such a thing as the narrow focus that well, now every single bank has seen a narrow focus in terms of departments, but not someone specifically focused on on media. So they did that. And then in 1981, that the first hire was a guy called Jeff Stevenson. 

So you get the VSS Veronis Suhler Stevenson, and that’s what it was called for many years, and was known very much as the media go to investment bank slash buyout firm. And then Jeff raised his fourth buyout fund in 2005. Focused on media but as we all know, media changed dramatically during the early 2000s with the internet, clearly, and also the fact that most media companies, big ones certainly have already been consolidated. So the sort of the origins of their buyout side was really to do lots of small add on acquisitions, hence your comment about the 400 to build them into a much larger entity, and it was very successful. But as the market changed, so did Veronis and Suhler change and the two principles left in the mid 80s. 2000s, rather, 2008, 2009. 

And Jeff pivoted the firm towards really what it is today, which is structured capital, which is essentially providing minority capital to entrepreneurs. So very similar to my mezzanine strategy, but we were focused on sponsors. At VSS, we’re focused on actually giving capital to entrepreneurs. It’s a it’s a very interesting sector because it’s typically compared to growth capital. Growth capital players are looking for companies that are growing at 30-40%, and we aren’t. We’re looking at more 10 to 15% growth where we can do to a hybrid structure of some debt and some equity, which reduces the dilution to the owner, and, and then hopefully get involved with them to take them to a different level. And what we say is it’s just institutionalize those businesses.

Patrick Stroth: Okay. And so unlike some other organizations out there, you’re dealing with owners and founders who aren’t looking for an exit, they’re looking to get to the next level. I find this is ideal, because there are a lot of the larger institutions, if people don’t know about VSS capital, what happens is they’re at a point where they’re too big to be small, but they’re too small to be enterprise. And so where do they go to get to that next level? 

And unfortunately, if they don’t learn about organizations like yours, they may default to you know, an institution, and you know, the brand names and so forth, which will underserve them but overcharge them. And you know, or are they’ve got to default and go to a strategic and you know, the strategics gonna want majority. And that’s not in their interest. So this is great, because you’re looking for this, but it’s more patient, you’re not a family office, it sounds like you’re not looking for that robust 40 plus percent turn. So that gives a lot more relaxation to these guys, I imagine.

Patrick Turner: Yes, it does. And you sort of put your finger on the button there. Because I think if you think about the growth of the industry, whether it be credit, or PE is everyone’s going to bigger funds, and they’re looking for assets under management, and essentially, at our fund level, which is 500, just over. We’re you know, obviously, that’s not our focus, our focus is really on creating value within those particular companies that we invest in. So very different. And of course, when you’re very large as a credit fund, perhaps you really don’t want to get involved in small companies that need lots of help. 

What happens if they get into trouble? Can you actually replace management? Can you add to management? Can you provide some different geographic or even product lines to them that help grow their companies, institutionalize them as they say. No, they can’t. So it is an interesting niche. As I say, I think the growth capital is really the complement to it, except that we’re far less diluted. So again, attractive to those who are very certain in terms of where they think they’re going. And they’re looking for help, as I say.

Patrick Stroth: And then now, a lot of times, I’ll ask, because there are 5000 private equity firms out there and investment banks and so forth. And just okay, how are you different from them? Or what do you bring? You’ve covered that, to the extent. Is it still largely media, or where’s your area of industry preference that you’re looking for?

Patrick Turner: No, no. So I think that’s the whole that’s the whole sort of key why Veronis Suhler doesn’t exist. VSS is its replacement, because there really is no media. And so essentially, Jeff, and the team pivoted away from traditional media to, to tech enabled business services, with a particular focus on education and health care. And they’re also some great capabilities in human capital, and managed services. So if you think about it, you know, in the early 2000s, Thomson, large newspaper company bought Reuters. You don’t really hear about Thomson anymore, but you certainly hear about Reuters. So that was the pivot and, and a critical one. And one that’s, that’s been very good. And so to your point about why do people come to us, yes, we are focused on those industries. And so we do have particular strengths within those industries. 

People we know, areas of expertise that we can bring to the table. Certainly understanding of the businesses, perhaps so in advance of trends that most other people would typically see later. There are things that contribute to the creation of value to, to those entrepreneurs, and the entrepreneur certainly wouldn’t want to just give us money freely, they would want something in return. So hopefully, we can bring them far more than what they give to us in terms of a gain, and that has happened. And so the word’s gotten out. I think, certainly in certain industries, we’re particularly strong in in healthcare services, the word’s gotten out and, and we get inbound calls from people wanting to help us to help them so that helps, you know, big successes help in terms of people wanting to come to you for assistance.

Patrick Stroth: Yeah. And that’s nice. It’s got to be easier for you than other transitions because you’re not replacing management, you’ve got a willing partner that’s looking for you and they’re leaning on you. You’re not some outside consultant, you’re embedded with them. Because you’re investing right right alongside them. I’m just curious, if you have any case studies or just an anecdote about where you were brought in, you’re talking to the management team, and you have an idea to share with them. Okay, let’s try it this way to get you to the next level. And where you pitch the idea, and you just saw light bulbs going off. I mean, that’s part of the magic of this.

Patrick Turner: Yes and every deals, you know, there’s a different got different dynamics. But I do remember one particular transaction, which my partner David Bainbridge was responsible for called Caravan Health, we just sold it earlier this year. And essentially, it was a data driven company providing data to the healthcare industry, generally. Hospitals, particularly and doctors, to help them manage themselves through what’s called Value Care. So improving the quality of their care. And he’d met this lady, I’d say, probably three years before we actually did the deal. They made a conference, they chatted, she told them what they did, and, and she said, well, we’re not ready for you yet. But we might well be at some point in the future. And so she did, she came to us. And essentially, the, the pivot for her was that she was looking for capital to, to transform her technology. 

So she was using an outside platform, to provide this, you know, incredible data to all these hospitals and so on. And very unusual, by the way, in terms of what she the niche that she had picked, and she was early. So we provided 20 million to her, which half of which was, was designated towards, essentially, starting its own technology platform, which she succeeded in doing. So that becomes much more of a value proposition to a buyer, because they own their own platform. It is particular to them. Obviously, all the data belongs to the company, and so on, so forth. So quite valuable. And I think that enabled her to really transform the company from you know, a good company to a great company.

Patrick Stroth: Yeah, I think that’s fantastic, is people that know what they’re doing. And then you had to bring in outside expertise to then you know, get get things implemented and come up with the idea. So I mean, that’s, that’s better than just getting capital from a blind investor VC, where they just throw the money at you and say go get them. You’re coming in with this. You’d mentioned, we made a quick reference, when we were talking about 400. VSS has been involved in 400 add on transactions, so you’ve done I mean, that’s, that’s 15 to 20 a year. So I mean, that’s really, really impressive. And I just wanted to ask it from this perspective, because, you know, acquisitions are getting easier, and they’re processing a lot faster. 

And a real big reason for that is the expansion of reps and warranties insurance, where risk is being pulled away from the parties and outsourced to a third party with deeper pockets. The process from beginning to end to get something put in place to get that protection in place, it has been automated. So it’s a lot simpler, takes a lot less time. And, you know, the track record of insurance policies actually paying claims has been excellent. And so we’ve seen this really expand the capability of, you know, getting deals done successfully. But you know, don’t take my word for it. You know, Patrick, good, bad or indifferent, what experience have you guys had with reps and warranties insurance?

Patrick Turner: Well, you know, it’s so interesting, because I was just looking at my notes, actually, when I first used it was in 2018, actually selling a business in Holland, if you can believe. And I think it was absolutely critical to the ability of the deal to get closed. So it takes all that risk off the table, it’s very fair in terms of cost. And then of course, now we use it every single deal, and it really is just, it just cuts so much time off, in terms of being able to execute. And again, not that there’s anything to hide or anything, obviously, and you’re protected, I think from that as well. But it’s just, it’s just such an easier way than to have escrows and then maybe fight about escrows and have an argument about escrows, and so on so forth, which is really something that unfortunately, does happen. So I just I think it’s just absolutely vital that you use these and we use them all in every deal when we sell.

Patrick Stroth: That’s fantastic. Well, I think one of the newest developments out there, I’m glad to talk to somebody who’s involved with add ons is, you know, unlike platforms, add ons tend to be a lot less expensive. And so they may be if they’re particularly if they’re under 10 million or $20 million in enterprise value. They may not be eligible for reps and warranties. Well, what’s nice is there’s a new program out there. It’s a sellside program, and it’s designed to protect the seller and replace the escrow on these sub $20 million dollar deals. 

And so in the event, there’s a breach, buyer just comes to the seller with the demand, the seller’s policy kicks in pays the buyer. Straight, straight up. And it’s made it tremendously easy where you cut escrows down from 10% enterprise value down to 1%. And so I think it’s ideally said it’s not good for anything over 20 million and there’s a lot of stuff out there. But for those add ons that are under 20 million, it is a nice solution. And I’m very proud with the industry that’s coming to with these evolutions and and innovation, so it’s been very, very helpful. Patrick, for our audience, what’s an ideal target? Give us a profile of your of your ideal client.

Patrick Turner: Right, so it’s a, it’s a company that’s, that’s somewhere between 20 million and 50 million in revenues, can be north of that, of course. But those are the typically the sizes where, you know, that as I said talked about it before the help is really mostly required. And the help is really in multiple areas, both in terms of infrastructure, but also, in terms of KPIs, in terms of financial controls, succession plans, everything that you can imagine with which most companies, if you think about have, don’t. They don’t have. One of our companies we did was actually a virtual company, there was no office. So there is now. 

But again, it’s sort of a what we’d like to see a products where, or services rather, they’re not really they don’t make anything the companies we we invest in, but they do provide services and the services they provide are mission critical to the end user. So typically, we’ll have recurring contracts, longer term contracts and so on associated associated with them. Not always have to be, but but that was going to be the ideal candidate. And again, the capital would be mostly used for some growth, just like I explained in Caravan, for instance, that was game changing for the company. And those that would be I would say, obviously US based could be anywhere in the US. And again, looking to really help take that company to a different level in terms of institutional interest.

Patrick Stroth: Right, right. So you’re not looking for commodity plays here. If you’re doing mission critical services, very hard to move away from that.

Patrick Turner: Right. Really hard to rip out.

Patrick Stroth: Okay, great, great selection there. Patrick, we’re, you know, speeding through 2022. Like, it’s almost over, it feels like, you know. I’m just curious, what, what trends do you see as we go through the rest of the year?

Patrick Turner: Well, you know, I think that it’s actually a super interesting question. And by the way, every day, I think it changes. So obviously, the horizon has been recession, potential increased interest rates, increased costs, and of course, supply chain issues. And let’s not forget Ukraine. But there’s been a drop off since last year in activity, I think there was just so much activity last year. And so naturally, there’s a sort of a fall out, but it’s it’s definitely picking up again, the you know, the key drivers, of course, is there’s so much capital in the market, and particularly private equity market that that actually as these private market indices decline is a lot of opportunity for some of the larger b players. But for us, I’m seeing I’m seeing probably more caution, I think, more caution, in terms of, of selling from our perspective about, you know, where the plays are, there’s still an element of COVID that’s out there that has makes adjustments sort of questionable, going back to 2020, even 2021. 

So I think, I think this year is is I would say is probably a year of some caution. And so, again, not that it’s the end of the world, and we can all have our views about recessions, and I certainly have mine. But I just think in this particular environment, you want to be super cautious. Not, but the amazing thing is, is that people still need capital to grow. So if the choices are limited, which I think they are, banks get a little bit squirrely in these times, in terms of quality of the lenders, and certainly where we play, we’re below that level anyway. So it tends to be pretty a good time for us. We always say choppy markets are our friends.

Patrick Stroth: Well, I think, yeah, I think where you guys are situated is really ideal, because there are, there’s one set of owners and founders where the regardless of what’s happening, time hasn’t stopped, and everybody’s getting older, and those that are looking for an exit, you know, that hasn’t changed. But there’s a growing group of these entrepreneurs that, you know, they don’t want to get out of the game. And you give them the ability that they can keep going and actually realize the dreams that they have. And and I think that there’s there’s no shortage of those companies out there, which is great, because you’re in and you’re in a great, great area, because there’s a lot more bigger buyers out there down the road. And I mean, as as, as some of these organizations get bigger and bigger and get into the you know, the 10 figure range, it’s hard to find a bigger buyer to get there.

Patrick Turner: So you can I think as you say, I think the smaller companies, the area we play in, if you don’t grow, you’re losing. You’re losing time and you may actually have more competition. So you can’t stand still, irrespective of the macro environment. And I think that’s, as you say, we, again, we provide some some, you know, perspectives and positives as well, some some structure, some additions and so on that help, in any case in any environment for these companies to weather the storm better.

Patrick Stroth: Patrick, for our audience members, how can they find you and VSS Capital?

Patrick Turner: Okay, great. So, there is a website But you can certainly email me anytime at and, you know, I’d be delighted to, to respond, and hopefully find a way to do some business together.

Patrick Stroth: Patrick Turner of VSS Capital Partners. Thanks very much. These are the types, organizations like yours stay here to serve the lower middle market and I just, your longevity in playing is a testament to your success. So thanks very much for being here today. 

Patrick Turner: Thank you so much for your time as well, Patrick. Look forward to dealing with you as well.

Patrick Turner | Leveraging Financial and Industry Expertise to Drive Growth



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