It takes a lot to stand out in today’s competitive deal market, and according to one PE veteran, being a generalist is not going to cut it. CapitalSpring Co-Founder and Managing Partner Richard Fitzgerald tells us why specialization is advantageous to private equity dealmaking.
“I was a generalist prior to starting CapitalSpring and just felt like it was really hard to have a competitive advantage as a generalist,” Fitzgerald tells Mergers & Acquisitions. “Back in 2005, there were about 1,000 private equity and debt firms. Fast forward to today, I think there are 6,000 private equity firms, maybe more.”
Fitzgerald advises PE dealmakers to find a niche where they can become experts in because it will help them make better investment decisions and become better partners to management teams. “I think it’s hard to do that when you’re looking at 10 different industries that are all changing,” he says.
“I’m a big proponent of specialization,” Fitzgerald adds. “I just feel like that being a generalist, you’re trying to get up to speed quickly on an industry, probably hiring a consultant to write a white paper to understand if what you’re looking at has good margins or bad margins, or if the management team has a good reputation or a bad reputation.”
Invest in What People Know
The U.S. has gotten more competitive with more pressure to offer something differentiated to LPs, Fitzgerald says. That’s why he formed CapitalSrpring, which has offices in Nashville, Los Angeles, Atlanta and New York, to focus on the restaurant and franchise sectors.
“We chose the multi-unit franchise restaurant industry because we thought it was underserved and this was 20 years ago,” Fitzgerald says. “I think it still has some of those attributes.
“We felt that the franchise multi-unit area was on every corner of every small or big town,” he adds. “These are businesses that most of us frequent either daily or weekly.”
For example, brands such as McDonald’s (NYSE: MCD), have a regional or even a national presence, and are typically recession-proof. “People still have to eat,” Fitzgerald mentions.
“We’re investing in businesses that we probably as a consumer at one point were familiar with or maybe had our first job at,” he says.
Reach Fitzgerald at: [email protected]
