In a competitive M&A environment, it is not enough for private equity firms to win deals just on capital alone. Potential buyers are increasingly seeking operating partners to work with the companies they acquire.

Auxo Investment Partners, a lower middle market private equity firm out of Grand Rapids, Michigan, is one case in point. In 2017, Auxo acquired dry barge shipper M/G Transport Services and bought on industry veteran John Binion to serve as the target's operating partner. "Someone like John has enormous direct industry experience that none of us have," says Auxo co-founder Jeff Helminski. M/G is based in New Orleans and operates a fleet of 250 barges and ships.

Helminski is a mechanical engineer by trade and he previously held management roles at General Motors Co. (NYSE: GM) manufacturing plants. He believes his management and operational background brings a lot to the table compared to most private equity firms. "When we're walking through a manufacturing plant, I think have a background and knowledge that is different from the financial side of the house," Helminski notes.

Private equity firms are more and more looking for operating partners for existing portfolio investments and to form new companies to seek deals in specific sectors. For example, Clearlake has partnered with food and beverage veteran Bill Moses to look for food and beverage deals, and Huron Capital is working with David Brunori to do the same in the chemicals sector.

"It's probably a function of the competitive environment," Helminski points out. "It's probably more true to our space at the end lower end of the middle market."

M/G Transport
Auxo Investment

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Demitri Diakantonis

Demitri Diakantonis

Demitri Diakantonis joined SourceMedia in 2015 and serves as Assistant Managing Editor of Mergers & Acquisitions and writes The Buyside column about corporate dealmaking, and also covers the consumer sector.