On this week’s episode of M&A Masters, we speak with Suzanne Yoon, Founder and Managing Partner of Kinzie Capital Partners, a private equity firm based in Chicago. Mergers and Acquisitions Magazine named Suzanne 2020’s most influential woman in mid-market M&A, and she’s also been recognized by The Wall Street Journal as a top female dealmaker, shaping private equities both present and future. Just recently, Kinzie Capital Partners was honored by the Private Equity Women Investor Network (PEWIN) as the North American female-founded firm of the year for 2020.
“Really the start of Kinzie was based on an investment thesis around taking companies that were necessary for the economy, were going through some type of transition, and maybe had some age on them with regards to operations and technology, and being able to handhold, and through governance and technology initiatives, create more efficiencies, and also make sure that the infrastructure is in place to really take a company to the next step and think about growing. That was really our thesis,” says Suzanne.
We chat about Suzanne’s journey in the financial sector, as well as:
- Kinzie’s commitment to the lower-middle market
- The Kinzie Formula: av=f(K+O)T© — wherein accelerated value creation (av) is a function (f) of capital and operational improvement (K+O), compounded by technology (T)
- Her experience with rep and warranty insurance
- Her perspective on the future for women in finance
- And more
Mentioned in this episode:
Patrick Stroth: Hello there. I’m Patrick Stroth, President of Rubicon M&A Insurance Services. 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 Suzanne Yoon, Founder and Managing Partner of Kinzie Capital Partners, a private equity firm based in Chicago.
Mergers and Acquisitions magazine named Suzanne to the 2020 most influential women in mid-market M&A. She’s been recognized by the Wall Street Journal as a top female dealmaker shaping private equities present and future. And just last week, Suzanne’s firm, Kinzie Capital Partners, was honored by Private Equity Women’s Investor Network, PEWIN, as the North American female-founded firm of the Year for 2020. Suzanne, welcome to the show.
Suzanne Yoon: Well, thank you very much, Patrick, for having me today. It’s always really fun to be able to tell our story.
Patrick: I gotta say you’re probably going to be the only guest, and this is a rarity, but probably the only guest that doesn’t want 2020 to end. Congratulations on all the accolades. I think that’s a … all the great work.
Suzanne: I do want the Coronavirus to end. I will say that. I think it has obviously been a very challenging year for anyone who’s been in investment business, particularly if we have ownership and fiduciary responsibilities to not only our investors but the companies and our employees and their safety. I’m not confident that will all happen in 2020. So in a lot of ways, I am kind of looking forward to 2020 being over so that we can move on.
Patrick: Suzanne, before we get into Kinzie Capital Partners, let’s set the table. And why don’t you tell us about yourself and how you got to this point in your career?
Suzanne: So I am the daughter of Korean immigrants, and they really came here with nothing. I was very fortunate to have parents who both loved what they did and were very entrepreneurial. And were extremely focused on our education. And I was reminded every day that we had to work really hard. When I was coming out of school, I really was interested in the financial sector. And probably initially because I had been surrounded by my family, my parents were both in the medical field, but I had a lot of friends whose parents were in business, investment banking, CEOs of companies, and I was really interested in what they did. So I graduated from school and I went to go, I went to work for a large bank, ABN AMRO and then La Salle Bank, which is headquartered here in Chicago, and with a big global presence, went through their analyst training program. Worked on senior and debt financings for middle market companies initially, and then large global companies as well.
Ended up in a group called Special Assets through my rotational program at the bank. Special Assets at the time was also a place where they, when banks were able to do this in the mid-90s, where they held off-balance sheet private equity positions, so debt that had been converted to equity. And now the bank was managing that. So that was my first taste of, really, what it meant to be the fiduciary responsibility, of being an owner of a security or an equity security.
And so from there, I worked on a lot of different types of companies, very large restructurings and in bankruptcies, and really what we saw there was what happens when things go wrong. And it was a great, great learning experience for me, particularly as I was very young and had an opportunity to work directly with senior credit officers of the bank at the time. Having long term capital and having control over where your capital is coming from and not relying on the public markets was really important to me.
And so that was my entree into private equity, where we had more long term commitments from our investors. And we can have the time and the flexibility needed to work our way through issues if we ever came to them. So, that’s really what started my private equity, my pure focus, on private equity. And then from there, I was with an East Coast-based private equity firm. I worked with incredibly talented and smart people. My former colleagues and partners, I have the utmost respect for them. But I am from Chicago.
And during my time at the firm, I moved back to Chicago as the only managing director outside of the East Coast. And I was traveling quite a bit. And so that was a factor for me, really thinking about where I wanted my roots to be. And being a mother, I’m also a mother of three boys, I felt that I had one foot in Chicago, one foot in the East Coast, and I couldn’t really be in both places at once all the time. So that was a factor in terms of thinking about where I wanted to be. So I knew I wanted to be back in Chicago eventually, and with a team in Chicago.
This is where you make your own luck in some ways. On the investment side, I was seeing a lot of opportunities in the lower middle market. So some 50 million of EBITDA out of Chicago and the Midwest and really throughout the country that were really interesting opportunities but required a lot of operational improvements or help, because they were either going through some type of generational change or transition, and frankly, they were just too small for my previous organization.
And so I had an opportunity to partner with my current partner today who is the founder and owner of a 150-person-plus technology and management consulting firm and really leverage them. It’s called Clarity Partners, but leverage Clarity Partners and their resources to be able to provide operational expertise to these lower middle market companies that were going through transition. So that was really the start of Kinzie.
It was based on an investment thesis around taking companies that were necessary for the economy, maybe had some aging on them with regards to operations and technology, and going through some type of transition. Usually, we are the first-time institutional investor into a company, and through governance and technology initiatives, create more efficiencies, and then also make sure that the infrastructure is in place to really take the company to the next step and think about growing, right? Like, really growing.
And so that was really our thesis. And that’s how Kinzie was started. My goals of being in Chicago, being part of the community where my family is, and then also establishing a firm that was thinking about the future, right? And how to actually maximize and accelerate value through operational improvements, specifically around technology and being able to bring technological expertise that would normally be reserved for much larger companies to lower middle market companies is very important to me. So that was how Kinzie got started. And I think we’ve been really focused on that since we started.
Patrick: Well, what’s really striking about your past, and what led you to here, is that you came from a culture of coming into troubled circumstances and you avoided human nature, probably because you were coming in from the outside, but you’re coming in where there are problems. And instead of pointing fingers and bemoaning what led you to the problems, you’re coming and saying, “Right, okay, how are we going to get out of this? What steps are we going to take to do to fix it?”
And that is consistent throughout your entire career. So I could see that, where maybe you don’t have problems, you’re just not at that next level. And so that’s what you come in with. Kinzie Capital Partners. Now, as we think about it, the one thing that is different between private equity and law firms and insurance firms out there is, they’re boring because they pretty much just name their firms after themselves, okay?
They don’t even think about it. And you can always get a little insight into a firm if you found out how they come up with the name. So tell me about the origin in the name and then tell me about your commitment to the lower middle market you just mentioned because I think that’s a really underserved, vast opportunity out there.
Kinzie Capital Partners’ Background
Suzanne: So speaking of naming the company, I thought Yoon Capital Partners would just not resonate well with, frankly, a market that is dominated by white men. And even the CEOs, the sellers, everyone. I’m teasing about that. But … people ask me that all the time.
Like, Oh, you didn’t name it after yourselves. And we joke that, my partner, we’re both immigrant kids and we get teased a lot about our last names, right? Even growing up. So why would we name our firm? We don’t want people to tease us, because we were always a little bit on the outside. And so with that said, what I really wanted was to build a firm, and I still want this, that is going to outlast me. And so I never thought naming a firm after me because then it’s all about me, right?
Or our names were not the right thing, particularly because private equity is really a team effort. And I use a lot of sports analogies. So even within the team, I’m the coach. I think about myself as more of the coach and the strategist. But everyone has a really important role, down to our assistants, and I mean, everybody here. Because we have to manage people.
And so Kinzie is a street in Chicago, and the street was named after, I’m sorry, it’s actually a bridge in Chicago. And it’s one of the most famous bridges in Chicago.
So it was the first bridge that was ever built over the Chicago River, which is a really a main thoroughfare in Chicago. And it’s an iconic view, it’s one of my favorite views of the city. But if you stand on the Kinzie bridge, the original bridge was never torn down because it’s now considered historic. So you see the original bridge that was built and this ever-changing landscape of buildings.
And it’s even very different. The view from the bridge today, looking into downtown Chicago, is completely different than it was three years ago. And so to me, that was very representative. And even 10 years ago, 15 years ago, is just very different if you saw the evolution of what the skyline looks like from the bridge. And to me, that was just the evolution of also thinking about keeping in mind the old and preserving and respecting, right?
I think that is what is beautiful about tradition, keeping in mind that we are living in an evolving world. And having to keep that in mind. So it’s very personal to me. It’s Chicago, right? Everybody in Chicago knows, they always ask like, Oh, are you on Kinzie street? I’m like, actually, I think I was when I first started thinking about this name. But everyone outside of Chicago is like, what is Kinzie? Is it a person’s name? It’s a bridge. So that’s the story. It’s a bridge in Chicago.
Patrick: So this is a homage to your Chicago roots?
Suzanne: It is, It is an homage to it.
Patrick: While still looking forward. So you’re not stuck in the past. You’re looking forward for the evolution. That’s very, very clever. Well done. With the lower middle market, and you’ve mentioned this earlier, you like to roll up your sleeves and get your hands on that. Tell me a little bit about that, where you see your role with the lower middle market. Because, as I mentioned before, I think this is a huge underserved market and is ideal because, unfortunately, a lot of these organizations, they don’t know where to turn for help.
And if they go to the big institutions, they’re going to get underserved and they’re going to get overcharged and they’re going to get overlooked. And here you guys are, firms like yours that are at the ready with all the resources of the larger firms, scaled-down, that can deliver these great solutions. So tell me why you picked that as opposed to larger opportunities.
Suzanne: Patrick, I mean, do I have to repeat what you just said? Because that’s exactly why I wanted to and why I like the lower middle market. I think there’s just a lot of opportunity to take all of the skills that I’ve learned over my 20-plus years of investing and working with different types of companies, much larger companies and the ones that we’re investing in, and then also having the resources to be able to bring to those companies and make very significant moves that these companies would historically not have been able to make because they don’t know how to get to the resources that they need.
And so, I would say that’s probably the biggest factor for me is it’s very gratifying to work with a management team, or a prior seller, right, that is partnered with us and bring our expertise to the table and really partner with them to think about the future and execute on a vision, a joint vision.
And a lot of times, the people that we’re talking to or that we’re meeting within the companies that we get excited about, there is a vision already in place, they just don’t know how to execute it. So the idea is there. And so that’s really how I see our job, to make sure that, if we have a collective vision, that we make sure that we execute on that vision.
Patrick: Let’s get into what’s really unique about you and Kinzie, and that’s the Kinzie Formula. And I’m going to give my observation on this, and I’m not saying this to flatter you or anything, it’s just what struck me about it is the term is a formula, okay? A lot of organizations, they’ll have a process or they’ll have a system or a model and those may or may not work. I love the subconscious feel of a formula.
A formula is literal, it’s reliable, it’s repeatable. And it’s just a great sense of comfort that you’re coming in with a formula. And we’ll have it in our show notes and it’s on your website, but explain the formula and how it works, where you guys came up with it and how that’s pretty much your core right now.
The Kinzie Formula
Suzanne: Thank you. We take a lot of pride in the formula because we spent time really thinking about how we could articulate best, in a formula, what our investment philosophy is and why we think that we are going to be the best fit for the companies that we choose, right? And vice versa. And we really thought hard. And our formula is just this, for the listeners out there who don’t know our formula, it’s accelerated value equals a function, or is a function of, capital plus operations, compounded by technology.
So what does that mean, right? It just means our goal as investors is outsize returns, alpha, and how you get to outsize returns in alpha is we have to accelerate the valuation of that company. And the way to do it is to make sure you have the right capital structure in place. And add in operational excellence. And we think of the compounding that you have with those two things in place, and you add technology to compound the effects of good capital and great operations. And that’s it.
Patrick: Yeah, very contrary to the cynical view of private equity, which then I have a formula, it’s just minus, okay? We’re gonna cut, cut, cut, cut, cut until we’re adding value by cutting.
Suzanne: You know, sometimes that is part of the operational excellence portion, right? Is that you do have to upgrade talent. Sometimes you have to, and especially in long-time family-owned companies, there could be, you know, dead weight, and it’s not good for the culture. It’s not good for a culture to have people who are underperforming and everyone knows that they’re underperforming. So I agree that private equity has this reputation for cutting but I think a lot of times there’s a good reason why that cutting is happening. It’s not just because of costs, it’s because there’s fat.
And you need to replace certain areas with other people. And every company is as good as their people. So it’s unfortunate that private equity has that reputation because we do it a lot. And I say we because I include myself. We certainly have done that in acquisitions, but we also add people. If you want to grow, you also have to have the right people and sometimes a lot more people. So I think if you look at private equity as a whole, the net add of jobs is probably much higher than the cutting that we all hear about.
Patrick: Well you actually save companies, because if they don’t change, and if they don’t adapt, their lifetime is finite, and they could be gone, and then everybody’s gone.
Patrick: And then as you talk with, in the Midwest and where you’re probably investing, these are companies that could be the lifeline for the community. And so if the company goes, community goes with it. So I mean, there are some very, very important roles there. Suzanne, give us a quick case study, give me an example of where you come in on opportunity and just where the formula came in and magic happened.
Suzanne: Oh, I actually have one more recently. So, we have a portfolio company called Colony Display. 37-year old-company, the two sellers were actually the founders. One of the founder’s sons had taken over as, essentially the chief operating officer, and then the CEO and he grew up in the business.
The business had been run a certain way, the knowledge is incredible. And this was a company where the customers loved them because they are so service-oriented. So when we look at a company, their product was excellent and had a lot of customer concentration. But there were no strong financial controls at the company. So we had to make some changes within the financial team and improve financial controls.
Again, family – it was started 37 years ago, so the infrastructure wasn’t at the point, and I would say, management and executive infrastructure wasn’t at the place that it needed to be in order for the company to continue to grow. So we added. We hired a new CFO, new controller, a head of HR, which never existed at the company prior, despite the fact that they employ anywhere between 250 to 1000 people a year across three different manufacturing plants, manufacturing and assembly plants.
We made some pretty significant investments into the systems. Communications, new website. Partly through increased sales, the production has improved significantly through some operational improvements we’ve done. But also with the new people hiring, there was also another head of engineering that we brought in.
And the company will double its EBITDA in a very short period of time through pricing, discipline, and production discipline. And now, I feel the company’s in really good shape to continue to grow on the top line and they could support that with the right infrastructure, right? And human capital and an actual infrastructure. So a lot of work within the first six months and continues to be a lot of work. We haven’t quite owned it for a year yet and we’re north of double EBITDA already. And so that’s great. It’s really fun when all the work you do actually shows up on the bottom line.
Patrick: So for anybody that’s considering a transition, they really need to talk to you. I know you’re not going to guarantee to double EBITDA in six months, but that is very, very impressive. Well, well, done.
Suzanne: Thank you.
Patrick: So, tell me again, one of the elements that’s in mergers and acquisitions that’s come along and is now available for the lower middle market companies is rep and warranty insurance. Used to be a product available for $100-million-plus transactions, it now can come all the way down in terms of lower pricing and simpler underwriting and eligibility rules to where a 10 or $15 million add on can be insured with rep or warranty. I’m just curious, good, bad or indifferent, tell me about your experience with rep and warranty on any of your deals.
Suzanne’s Experience with Rep and Warranty Insurance
Suzanne: Well, it certainly cuts down on the time that we are negotiating, right? Reps and warranties and indemnifications and other. And I would say the likelihood of a deal blowing up over those issues is pretty high, generally. And if you spent six months to a year working on a transaction and it comes down to reps and warranty, I think the beauty of reps and warranty insurance is that it puts, in some ways, it’s not that there’s less diligence done around those issues or there’s less concern, right?
The concern is always there. What it does do is it puts in some time, in a way, a middleman in between you, us as the buyer, and the sellers so that everyone doesn’t feel like, both parties don’t feel like they’re trying to screw each other. Because there’s a high degree of skepticism on both sides around those negotiations.
Patrick: Yeah, that’s natural, particularly because the timing. The sellers, they’re never prepared for this but they’ve just gone through at best an “intrusive” due diligence process that nobody’s ever prepared for. And then they thought through that, they said, “Well, we’ve told you everything.”
Suzanne: And then imagine that it’s exponentially worse for a first-time seller. When you say they’re not prepared, that is really an investment banker’s job, in my view, with a first-time seller is to make sure they’re prepared as possible for the incredibly intrusive due diligence process that is going to happen and continue to happen. Even with that, they’re never prepared. Especially with a first-time seller. And so, imagine getting to the reps and warranty insurance, or reps and warranties, not the insurance, but even before the insurance, the negotiations around indemnities and reps of warranty.
The beauty of that, having reps and warranty insurance, one, I think makes people less skeptical of each other. Do you have a third party really taking a, that has seen everything and really has to underwrite everything? The second is it certainly gives everybody more comfort that if anything goes wrong, we have this, the insurance in place. But I also think the reps and warranty insurance is generally a good process for private equity firms because it does require a lot of third party due diligence, additional third-party due diligence, which we probably should be doing anyway.
Patrick: Suzanne, tell me, what’s the profile of your ideal target now? What are you looking for?
Kinzie Capital Partners’ Ideal Target
Suzanne: So, our profile is 5 to 15 million of EBITDA in the consumer manufacturing or business services spaces. We have a lot of focus on manufactured products. So we do consumer, but not branded consumer. Really, it’s more consumer B2B products. And we like companies that are going through some type of, I think we’re the best fit for companies that are going through some type of transition.
So either a generational shift, or, where a company’s stifled to grow and they have objectives to grow, but really don’t know how to do it. And then some of the tenants that we really look for are a strong management team or leader within the management team that we can partner with. And really I would say, and we do our due diligence with culture quite a bit, so that they’re the right cultural fit with our team.
Patrick: Based on your recent successes this year, with the recognition of PEWIN and your status as one of the top women in private equity for the middle market. I did have one other question for you, as a father of two young teenage daughters, I am now more and more aware of opportunities for women in and around not just private equity, but mergers and acquisitions in general.
And I assess now, again, as a father of two daughters, women are seriously underrepresented in M&A. And there are leaders like you that are coming through that are, I wouldn’t say paving the way, but you’re just showing excellence in this area. And I think nothing is more appealing than excellence and something that people can appreciate. And so, I’d like to get your perspective of the trends that you see for the future for women in, either in finance in general or M&A or private equity in particular.
Suzanne: So I’m very bullish about women and more women having more leadership roles because I think part of what we really need to do is make sure that women and people of color are represented in leadership roles so that the next generation see that and know that it’s possible for them. And that we talk about it, because there are differences, right? I mean, I’m a mother of three and that has challenges too, being a mother of three. And just like it is to be a father of three. And I know you have daughters, I have sons, so I’m learning a lot about them.
I’ve learned a lot about men through having three boys. And I appreciate that very much. And so I’m really bullish. I think girls today are more confident. They know they have a voice and a lot of it has to do with their fathers and men who make sure that they know that, right? That they want to be more independent. And I’m very fortunate. I had a dad who never made me feel like I couldn’t do anything that boys could do. And so it’s important not just for women to support each other, but men to support women. And I certainly will say, my whole career, as you mentioned, there were not very many women.
I did not have a lot of good experiences with other women cause I didn’t have them. They were mostly with men. And I’m really fortunate that I had mentors, advisors, bosses, both men and women who were incredible champions for me. And so I think we have to continue to do that, right? For underrepresented people in general, but especially in industries where it’s very clear they’re underrepresented.
Patrick: Well, I also believe that women just, people coming from different perspectives, but particularly women, there’s a different skill set that you bring to the table. And that diversity and different diversity and approach and everything avoids groupthink and gets other perspectives as you look at opportunities. And there are opportunities that could have been missed had it not been for different viewpoints.
Why Diversity in the Workplace is More Than Just Filling Quotas
Suzanne: I think diversity is, we talked a little bit earlier about trends, right? In the market. And diversity is a trend, but it’s not a trend to be trendy. It’s a trend because the statistics, right? That show that if you have a diverse board, companies outperform when they have diversity in their leadership ranks and when they have diversity on a board. So that’s both gender and ethnic and experience. You can’t have everybody thinking the same way. So I actually attribute some, a lot, of our success at Kinzie to that and not because I’m a woman and I have an ethnic background, but more when you look at our entire team and you see the different experiences we’ve had.
So me having grown up within the financial sector professionally, my partner who grew up in technology consulting and fixing companies, my colleague who came from a corporate finance background and really worked inside a large company as an operator. And then in just the various backgrounds we have, we all bring very different perspectives that help us think through issues at any of our portfolio companies. And I’ve never operated a company before, except for Kinzie. And I was always a deal person.
And so having those different perspectives, we have like accounting, we have to deal with honors or we have an accounting issue or we have to figure out how to make a project management software work properly so that it’s communicating across this lower middle market company because the larger the companies are, a lot of those things are fixed and they’re set because there’s a lot of professionalism. So we’re professionalizing an organization. And it’s very difficult to do that if you don’t have different perspectives and experiences. So we really take diversity, we think it’s very important. We know that it’s important for results.
Patrick: Well, I think the other element of diversity is you need to be flexible, you need to be able to be nimble and not reactive, but proactive, in every phase of operating a business. If you’re set in your ways and you’re monolithic, you’re doomed to failure. Well, diversity is just one of those other elements there that’s being brought to the table. And it’s also, I mean, the thing about mergers and acquisitions to me is it is not one company buying another company. It is one group of people choosing to partner and join another group of people. And the expectation is one plus one equals six.
So, or whatever the Kinzie Formula is for that, but one plus one Kinzie formula is going to go, a multiple. That’s what it’s about. And so this is just another part of the human element that comes in. So Suzanne, been very, very informative. Thank you so much for joining us today and sharing your thoughts and congratulations with you and Kinzie and hopefully, the successes of 2020 come follow you into 2021 and COVID stays behind. How can our audience members reach you? How can we find you?
Suzanne: So we’re on LinkedIn. And we actually are pretty active, or we try to stay as active as possible on LinkedIn. And also go to our website, www.Kinziecp.com. And you can contact us through there. And then our whole team is accessible again on LinkedIn. We have a Facebook account and a Twitter account. We try to do it, we try to stay relevant. So we’d love to hear from you.
Patrick: Suzanne, it’s absolute pleasure. You have a good afternoon. Thanks again.
Suzanne: Yeah, thank you very much, Patrick. Appreciate everything.