In this week’s episode of Not So Private Equity, we welcome Logan Walters, Partner at Forge Equity Partners, a private investment firm with a long-term mandate to help grow businesses. Logan joins us to talk about his beginnings in government and politics, and how his interest in building companies and the people behind them led him to private equity.
The Not So Private Equity Podcast and Beyond Consulting are co-hosted by Ken Kanara and Steven Haug.
Steven Haug: Hey, this is Steven Haug, co-host of Not So Private Equity. We have a great discussion ahead of us today, but before I dive in, I want to thank our sponsor, ECA Partners, an executive search and on-demand consulting firm, specializing in low and mid-market private equity. To learn more about ECA’s services, you can reach out to them directly through the website eca-partners.com.
Now, I’m very excited to introduce our guest, Logan Walters. Logan is a Partner at Forge Equity Partners, a private investment firm with an operationally-focused leadership team dedicated to helping their portfolio companies grow and succeed for the long term. Logan, welcome to Not So Private Equity.
Logan Walters: Thanks so much, Steven. I’m glad to be here, I appreciate it.
Steven Haug: Of course, I’m really excited to hear your story and to talk a bit more about Forge, which I think have a very unique style, especially when it comes to investing in companies and generally what you do for the companies to help them succeed. Before we get into that, can you tell us a little bit about your journey to private equity?
Logan Walters: Sure. I’m going to share a little background. I’d really start with my family. I come from a family of entrepreneurs, so investing in, looking at, and learning about small businesses has been in my blood for a long time. Both of my grandfathers were entrepreneurs, my grandmother was actually an entrepreneur, she had a dance academy that that she ran by herself. My mom was an entrepreneur and my dad is an entrepreneur. I’ve lived around and been around people who’ve built businesses my whole life, and that gives me a very direct appreciation for what it takes to do that. Part of my interest in private equity really is my interest in small companies and entrepreneurs and what it takes to build those companies, and the people behind them. My path was a little bit different. I graduated from the University of Texas and actually didn’t go into business out of college. I went into government and politics. I started working for George W Bush when he was the governor of Texas in 1997. I started in college, as an intern, working for him in 1993 and then transitioned over and started working for him fulltime in 1997, about the time I graduated from the University of Texas. I was this personal aide, so I traveled with him everywhere, did everything with him, both inside and outside of the office. That was at the time that he was running for his second term as governor. We did that campaign and then I worked with him during the legislative session, which was until about June of 1998, and that’s when he really started to explore running for president. I stayed on with him and was with him during his first presidential campaign and I worked in the same capacity. I traveled with him everywhere. It was an incredible experience. After he won, I stayed for a year in the White House. I was with him for about 4 1/2 years from the time he was running for his second term as governor through the presidential campaign, for a year in the White House. Then I worked for about a year at the Department of Energy, and then I went back and got my BA at Rice University.
Steven Haug: Is there anything from those days, working with Bush, or in government in general, that you still lean on whenever you’re evaluating companies or working in the business sector in general? Are there any tools that you developed there that you find useful today?
Logan Walters: Definitely, Steven. There are a couple of things that I learned when I was working for President Bush, both on the campaign trail and in the White House, because they’re very different experiences. On the campaign trail, you’re just scrambling every day. You’re very responsive. There is a plan, but you’re reacting on a daily, hourly basis to what’s coming across on the news where you are, what you didn’t plan on. There are a lot of people on a presidential campaign, that are very young and inexperienced, and no one is there, or should be there, for the money, or self-aggrandizement or credit. They’re really supposed to be there working for the person. What you end up with, if it works out, it did in the Bush campaign, is a lot of people who are, what we call “rowing in the same direction.” They don’t necessarily have to be the most experienced, but they’re definitely not there for themselves. They’re there as part of the team. That team dynamic, putting yourself second, working very hard, was something I definitely learned on the campaign.
When we shifted to the White House, the dynamic changed a lot. There’s a lot of structure there. You don’t want to be in a constantly responsive situation. We very intentionally slowed things down. There was a very deliberate pace, and a lot of planning. I mean, things happened, obviously. We don’t have to go through the history of it, but everybody knows there were really, really significant events during President Bush’s first term, and in his first year in office. In that context, President Bush really drew on his Harvard MBA and he created teams, they made decisions, and they went forward with those. They thought about what had happened and then responded accordingly. In that situation, it was a much more deliberative, planned, and strategic approach versus the campaign.
Both of those experiences, really, have shaped me in a number of ways. The one overarching theme that I would say is really important, in both situations, is that it could never be about. It always had to be about the team, about serving in the government, and about trying to get him elected on the campaign. I think it’s given me an acute awareness for people who are in it for themselves. We can pick those out pretty quickly in our businesses and we try to avoid investments that are driven by people that are like that. When you get to build a really good team culture and dynamic in a company, it’s just incredibly rewarding and incredibly fun.
Steven Haug: How did you find yourself at Forge Equity? Of course, you were there in the early days. What was it about moving into private equity that really piqued your interest?
Logan Walters: I’ll go back and sort of connect the dots. I left the Department of Energy to get my MBA at Rice. I approached the MBA as an opportunity, since I hadn’t been in business, but I knew I wanted to be in business because of my family’s entrepreneurial background. I just explored what was interesting to me, and finance kept coming up. It was really the area of my MBA that I was most interested in. I actually did a summer internship in an investment bank, but it was just too distant from the companies, and we were dealing with larger companies, and I really wanted to focus on smaller companies. I went to work for a firm called SCF Partners right after I graduated with my MBA. They focus on small oilfield-services companies, and I learned a ton there. It’s a firm that’s been around a long time and L.E. Simmons founded it. He taught me a lot about investing. We lived through some really good ups and downs in those companies. The oilfield is a very cyclical place, so you have to react really, really quickly when the market turns or you’re going to be in trouble. That was a really, really educational experience for me. I found at SCF that I really enjoyed interacting with the companies. That was probably when I really felt like I found the thing that I want to do for the rest of my life. Now at Forge, we’ve changed it a little bit, as you know, and touched on in the introduction, Steven. We’re more long-term focused. We are a different vent on private equity or the independent sponsor model at Forge.
Steven Haug: I think most folks, and the reason for this is that whenever we think about Houston, in private equity, all the clients that we work with out there are almost exclusively focused on energy. Is that what Forge is focused on as well?
Logan Walters: No, we’re not Steven, we’re more broad. We are looking for industrial-type companies, but our first investment is an electronic waste recycling company called STS Electronic Recycling. That business is what I would call, “light industrial,” but it also has a consumer facing aspect to it, so there’s a little bit of B2C in that. What we’re really looking for are businesses that we can understand and that we feel we can impact by supporting the management team. We don’t want to go in and run the business day-to-day. That’s not what we’re signing up for. We’re not turn around specialists. As we get to know a business and get to know a management team, we want to understand what things are standing in their way. If we’re well-suited, and we really try to dig into this, to make sure all parties are on the same page, and we’re well-suited to help them get those things that are holding them back out of the way. Sometimes it’s capital, that’s pretty simple. Other times it’s people. They need help finding and hiring people. Working through somebody like ECA is a great way to do that, and then sometimes it’s really about analyzing data, and understanding their markets, or going and making acquisitions, and those are all things that we can help support. So, we are not energy-focused, but we’re not anti-energy. I want to emphasize that as well. We do look at businesses in the energy sector, and we do look at businesses in oil and gas, but we have the mindset that there are so many smart people in Houston focused on oil and gas, and energy, that if it makes its way to us, we need to be careful because maybe someone should have gotten to it before us.
Steven Haug: That’s a good way of thinking about it. Do you think there’s a trend in the Houston market, for private equity firms, to begin to diversify a bit more outside of oil and gas, or do you think they’re still really, really focused in that sector in the city?
Logan Walters: I’d say yes to both. In the last couple of years when the oil and gas markets were having pretty tough times, a number of oil field-service private equity firms positioned themselves as industrial-focused and broadened their scope. There’s absolutely evidence to support diversification. I think that’s fine. If you live in, particularly oil and gas-services and manufacturing, and you’re dealing with the cycles and the quick reactions, investing in more stable industries is a little bit easier actually. You have to be careful, make sure you learn about them, and know what you’re doing, but the stability of those sectors actually makes it a little easier to invest in. At the same time, oil and gas are an important part of our future, they’re an important part of Houston’s history, and there is a lot of focus, money, and private equity that is going to stay focused on that. I think they should, so I say yes to both.
Steven Haug: Forge differentiates itself in the marketplace in a few different ways. One of them and something we mentioned early on, is that the founders of the firm, including yourself, are operationally-focused leaders. Can you tell us a bit about that strategy? I don’t know that there’s anyone in your firm that came from a traditional investment banking platform. Is that helpful whenever you’re talking with founders about acquiring their businesses, and is it helpful whenever you’re fundraising, or does it cause any hurdles?
Logan Walters: No, it definitely doesn’t cause any hurdles. None of us came out of, I would say, “traditional” investment banking role, and that’s not a criticism. I think, in some cases, the investment banking backgrounds are more applicable, but with the small companies we’re dealing with, Steven, you’re typically going to have pretty lean management teams. Sometimes you’ve got one founder that’s been making most of the calls for the company, and the decisions for the company. You may not have additional layers of management, and you also find companies where people kind of “grow up” there, and that’s the only experience they’ve had. That’s not a criticism of them, many of them are doing a great job, making a lot of money, and they’ve built a great company. We love those types of companies our first investment is in one, but not having worked in a large company, not having had different experiences in sophisticated companies where you’re using KPI’s and looking at the business and running it in a different way, you just don’t know what you don’t know. Our operational experience comes in very, very deep and with these smaller companies. We don’t come in day one with the attitude or the action of, “Okay, we’re going to change everything around here.” In fact, we sit and listen for a long time. For three-to-six months we’re watching and learning. We do our diligence, of course, but during the transaction, and to really learn the business, you kind of have to live there. We’ll really listen and learn, talk to the management team, continue to ask those question of, “What’s getting in your way,?” “What’s holding you back?,” and “What can you help with?” Within a couple of months, we’ll start rolling out some things that we hear them asking for, even if they’re not asking for them directly, or don’t know what the answer is, and they’re just saying, “Look, if I knew this information, it would really help me make a decision.” Then we’ll go in, maybe look at the data, start rolling out some KPIs, start rolling out some targets. And when it really becomes fun, and this just happens over and over again, it’s happened throughout my career, is when the management team starts to really own those and ask for them, and they get excited about seeing them come out every week, and they get excited about the results. That’s when you start to usually see a business’s performance really turn up, not to say that it was down, but it really can take a step up at that point because the management team starts to grab onto those things that we bring to the table.
Now, we can also step in if things become difficult. That actually helps us with our investment partners, our investors. They know that if things don’t go as planned, which they never do, and sometimes it’s for the better, sometimes it’s for the worse, but if things don’t go as planned, as partners, we can step into the business in a more active role and support the management team and make sure things get back on the right track.
Steven Haug: Logan, I know that Forge is looking for its next acquisition here. Can you tell us a bit about what types of companies you invest in?
Logan Walters: Absolutely. We are generally looking, one, for companies that are located within striking distance. I talked about our ability to get involved and our desire to be involved. Again, we don’t want to run a business day-to-day, but we do want to be able to visit the business multiples times a month. Geographically, we prefer if we can be there within an hour or two or three by car or plane. The second criteria is it needs to be a business that we can understand, which typically means an industrial business, and a business that we can impact based on our more operational backgrounds. You’re not likely to find us investing in a biotech company, a retail store, or restaurant. These are going to be more industrial or light-industrial: manufacturers, or services businesses. Size-wise, we’re looking at businesses typically that we can put ten to fifteen million dollars of equity to work in at this stage. We’re pretty flexible in terms of minority/majority, so we could buy 100% of a business with an enterprise value of $15 million, or buy 10% of a business with $150 million enterprise value. In minority situations, we just want to be really helpful with our partners. The main thing, Steven, and this is a little bit different than most private equity firms and independent sponsors, but we invest with a long-term mandate. At Forge, we view ourselves as really company builders. We’re looking for companies that are in market segments that look to have a long-term outlook, because we don’t have a mandate to sell those businesses. Our investors invest with us with the potential of holding the business for decades. When we look at a business, we consider, is it in a space that, as far as we can tell, looks to be a good place to be for the next 10-15-20 years. You can’t predict the future, but we make the best assessment that we can.
Steven Haug: I appreciate you highlighting the long-term vision that y’all have as well, Logan. I think that can be really important to some of the founders as you’re looking to acquire their business, so they’ll know that you’ll be a partner for the long-term and they won’t have new investors, or they won’t have new ownership, in three or four years from now.
Logan Walters: It is Steven, and we’re finding that that is pretty important to certain founders. It can be important because their family has owned the business for generations and they don’t want it to be bought and resold multiple times over the next 15 years. It can be because they really value their employees and want them to feel like they’re going to have a home. It can be because they feel like there’s a really good growth story there, but you can’t do it in five years so they want a partner who’s willing to invest for a period of time, and maybe even drive down the profitability of the business for a period of time, but really work with the company to help grow it while the existing management team and owners remain partners and shareholders in the business. We think it’s a good niche and many of our investors understand it because many of them are family offices, whose families owned businesses, or still own businesses, for generations, and those businesses just grew and grew and grew, over time, to the point that they were either sold for a substantial amount of money, or they’re throwing off a substantial cash flow every year that the family needs to reinvest. We’ve found that that story really resonates. The main thing from our side is, my partner and I just have to be patient about our own personal wealth because we’re not going to have this five year gets where we sell companies, but we signed up for that and our passion is really building businesses and it just comes with the territory.
Steven Haug: Logan, I really enjoyed our conversation. Thanks so much for joining us on Not So Private Equity.
Logan Walters: Absolutely, Steven. Thanks for having me and I appreciate it.