00:46:46 · Mikk, James Andersen
[00:46:46] S0: But on your own case, if you could see potential deals, what is your risk appetite when it comes to debt and equity ratio these days versus something you've done like deals you've done ten, fifteen years ago? [00:46:59] S1: Well, I mean, there's more capital for debt as well. Like, you know, we used to do deals at two times, two and a half times, maybe as much as three times. That would kind of like, oh yeah, that would make us uncomfortable. But now, like four times is kind of more normal, or even more. But I think that becomes less easy to do with higher interest rates. It was much easier to do in 2020, 2021, when interest rates were really low. [00:47:29] S0: Okay. And now the next phase for you. You're not so involved day to day anymore. Can you maybe elaborate a bit like your thought process? I'm sure it started many, many years ago, this idea of actually doing it soon. So maybe you can share more on how you thought, and how you made it happen.
00:47:49 · James Andersen
[00:47:49] S1: Well, I've seen a lot of businesses that struggled with succession, and private equity is a whole industry full of failed successions. It's a pretty common refrain, in part because it's a really lucrative business. It's fun. And if you're my age, it's easy to say, Oh, you can keep going to your 70, 75, 80, and you can. But you need to show other people that there's opportunity for them. Like, one of the things I'm really, really proud of is most, actually, almost all of the leaders of our business were started here as associates, and have been promoted from within. We've never had a senior person leave. Like, it's never happened. I don't think there are many firms that can say that, but that only works if they feel like they can continue to progress and take on bigger and bigger leadership roles. If one or two people stay at the top, and never relinquish control of anything, people like that look for other places to go. And we didn't want it to be that way. So we started thinking about succession several years ago, and it didn't happen all at once. As of January first of this year, I came off the management committee, but I'm still on the investment committee, and I'm still on five boards, and as we sell those companies, I won't go on new boards, so it'll be a gradual weaning away from the business. That's okay, I have other interests. I do write this substack, and it's only one article a week, you'd be surprised how much time it takes. But I like it because it helps me think. And I've got five boys who are spread all over the country that I want to make sure I have time to see. I have a granddaughter, grandson on the way. These things are really important to me. My family's always been important to me, and I have more time now to spend with them, and I have my own capital that I can invest in things that I find interesting. Over time, I'll do more of that. But I just felt like didn't want to be the guy who's... Who people look at and say, when is that guy going to get out of the way? I never wanted to be that guy.
00:50:10 · Mikk, James Andersen
[00:50:10] S0: Do you actually feel the same excitement like we did like twenty seven years ago? Now as you're having this another phase for you, like again, maybe becoming an entrepreneur because it's your own you have this freedom to deploy your own capital. Do you have any way of like the same feeling these days? [00:50:27] S1: I mean, look, it's difficult for any entrepreneur to, when you started something, worked on it for a long time, to let it go, obviously. [00:50:35] S0: But [00:50:36] S1: I also am a person, like, I had 10 lifetimes to live, I think I would... I'd have 10 different careers. Like, there's a lot of things that you can do in life, and and there's a lot of the world to see. I wish... I've always set set a goal to read a certain number of books a year. I'm going read twice as many books this year as I read last year, because I have a little bit more time. There's just, like, there's a lot of things to do in life. You know, it doesn't have to only be one thing. So yes, I'm excited about what comes next. [00:51:08] S0: Okay. And more maybe, again, doing it with your own firm for twenty seven years. What are you maybe most excited to do differently with your own capital?
00:51:08 · Mikk, James Andersen
[00:51:08] S0: Okay. And more maybe, again, doing it with your own firm for twenty seven years. What are you maybe most excited to do differently with your own capital? [00:51:20] S1: Well, for me, I think getting back to the smaller business, I would really like to find situations that I can invest some money, but really be an advisor to a founder, or a manager, or whatever, to somebody who is looking for some guidance. I'd love to be able to help somebody, and I don't want to micromanage. I have no interest in micromanaging anybody. But I've seen a lot of things that work and a lot of things that don't, and I think I can be a value added partner, because for me, do I really need more money? No. Is it fun to invest money successfully? Yes, but I'd really like to be able to find a situation where I can help somebody be better. That would be really fun for me. And the fact is, when you manage a private equity firm, yes, I was on boards, but I wasn't managing the day to day part of the board anymore, and I miss that. That's what I've always liked to do the most, and I haven't had time to really be good at that in a long time. So to me, will be exciting to be able to do that again. [00:52:22] S0: Now, again, going maybe more specific when we take this direct investment investing for you, how do you underwrite those folks? Because you have said so many times it's people, people, people all the time.
00:52:22 · Mikk, James Andersen
[00:52:22] S0: Now, again, going maybe more specific when we take this direct investment investing for you, how do you underwrite those folks? Because you have said so many times it's people, people, people all the time. [00:52:35] S1: Yeah, look, I'm probably not going to invest in a lot of funds. It's more going to be a situational thing. Like, is this a company and with a leader that I find exciting and interesting, and is likely to be successful? So it's really the underwriting that we do when we're looking at companies here. It's not really any different than that, Because I... What I don't think I'm going to do is put a lot of money in funds. That's less interesting to me. Like, you know, that's just kind of a totally passive investment. [00:53:04] S0: I mean, maybe more of a guy who's yourself has been working in a PE firm for three, four, five years, maybe ten years, has an exceptional overview of the specific market, be healthcare, also furniture and say he wants to build this roll up in this
00:53:22 · James Andersen
[00:53:22] S1: Yeah, so that's a specific situation. So the person would have to be somebody that I think is somewhat humble, who is good at building relationships, who's transparent. I think that's really important. You know, I only want to partner with somebody who's going to tell me the good, the bad, the ugly. There's a lot of spin that goes on in the investing world. I have very little patience for spin. Like we, here, for years, we have tried really hard to be brutally honest with our limited partners about what's working and what's not. One example, early on, we did a deal of a company that tripled in the first eighteen months we owned it, but in 2008, it got absolutely hammered. It's a natural gas related business, and it got absolutely hammered. And the business did not do well. We lost the money when we ended up selling off the business. We've not lost money very often. We really don't lose money very often. But in our annual meeting, we spent a half hour of a four hour annual meeting talking about one deal, that deal, the bad deal, not the good deals, the bad deal. And we went through exactly what happened, with things that we think we did right, and the mistakes that we made, and what we learned from it. And we had an LP stand up in the meeting and said, I've been going to these things for thirty years, and I've never once seen anybody do that. But we believe, and I want this from a partner, like, tell me everything, because that way we can get better. And so that's important to me, somebody who's going to be... Look, I want somebody who understands what being a partner actually means. I'm going to give you my money and help you. I want you to understand what that means. That's very important.