How I Invested in 150+ Companies and Built a $2B AUM Private Equity Firm | James Andersen Interview

Higher rates will crush the peak-multiple private equity vintages

Clearview Capital's bet is that lower middle market companies can be grown rather than squeezed. He started the firm in 1999, and two decades of buy-and-build deals alongside founders built a $2bn portfolio. The tailwind of four decades of falling rates is over, and he expects deals struck at peak multiples to pay for it.

Takeaways

• Clearview builds $2B on lower middle market buy-and-build. The firm has done about 45 platform deals among more than 150 transactions and manages $2bn. It invests alongside a CEO rather than using operating partners, and usually upgrades the finance seat.
• Higher rates will crush boom-year vintages. Falling rates from 1981 to 2021 handed investors one or two turns of multiple expansion for free. He expects rates to stay high while the government funds an imbalanced budget, and predicts heavy losses on peak-multiple deals.
• Adult day care deal returned 29 times. Clearview bought Senior Care Centers of America with 17 centers in four states, grew it to 75 centers through 15 acquisitions and sold it to Audax for 29 times its money.
• Rewards and incentives are different things. Andersen wants managers to know what their equity is worth along the way, because cash today is what people value. A million-dollar check at sale that surprises the manager is a reward, not an incentive.
• Returns come from growth, not cost cuts. Across about 45 platform deals, Andersen cannot think of a single time a big part of the return came from cutting costs. Experts are inputs rather than answers, and recruiting the right person is hard.
• Andersen steps back but keeps investing. On January 1 he came off Clearview's management committee, staying on the investment committee and five boards and taking no new board seats. He will invest his own capital as an adviser to founders.
• Via closed into the dot-com bust. Clearview's first deal, office furniture maker Via, closed June 1, 2000, the month the industry peaked. Office furniture fell 40% in eighteen months and the mark went to zero, yet Clearview made 2.5 times its money.

Andersen's path to Clearview Capital

1. Engineering with Schlumberger in Ras Shukeir, Egypt, in 1984, where letters took three weeks each way and about 20% were lost.
2. Six years at Mars and Co, the Boston Consulting Group spin-off that served one client per industry, forcing it to build a fact base rather than rely on experience.
3. A first private equity assignment at a private label snack nut company with $70m of revenue and a $500,000 operating loss on $10m of debt. He took revenue to $60m, operating profit to $5m and cleared $8.5m of debt in eighteen months.