Growth Investor Q&A: Camden Partners

A few weeks ago, GrowthCap’s RJ Lumba had the chance to sit with Jason Tagler of Camden Partners to speak about growth equity investing and his firm’s approach to partnering with CEOs. Below is the Q&A:

RJ: Can you give us a brief overview of Camden Partners and its origins?

Jason: Sure. Our founder, David Warnock, spent 12 years at T. Rowe Price where he served as co-manager of the New Horizons Fund (small cap growth mutual fund) and also founded and ran two private equity funds that have the same strategy we have today. This strategy is based on the following:

  1. Growth equity investment style – partnering with management teams and helping them grow their businesses
  2. Focus on three sectors – education, business services and health care
  3. Revenue size – lower middle market (we define as at least ~$10 million of revenue)
  4. EBITDA size – cash flow positive

At Camden Partners, we are currently investing out of our fifth fund with this strategy.

RJ: Can you tell us a little bit about your background as well as focus areas at the firm?

Jason: I joined Camden Partners in 2005 and have since been focused on growth equity and growth buyout investments in technology and business services companies. Previously, I worked in investment banking for Alliant Partners and Robertson Stephens. At both firms I was focused on technology companies and had a good deal of transaction experience on both the IPO side and M&A side. I started my career as a technology consultant at Price Waterhouse where my main focus was on developing software solutions for financial services companies.

RJ: Regarding the three sectors you focus on, do you have any examples of your investment preferences within each sector?

Jason: In general, we look for experienced management teams we can partner with and for scalable business models. In healthcare, we don’t invest in biotech where you see binomial outcomes but focus instead on services and technology-enabled businesses. Some of our recent health care investments include Metabolon, a diagnostic company focused on cancer and endocrine diseases, and Implantable Provider Group, which is a technology platform provider that helps to control the quality, and cost, of implantable medical devices.

In education, we have been on the forefront of trends over time. For example, in our second fund we invested in a company called Concorde Career Colleges, which was a post-secondary school for health training. In our third fund, we invested in American Public University, which we helped management grow into the largest online training provider for US active military and their families. One was a physical school and the other completely online school but both were timely investments relative to trends in education, and both were successful exits.

In business services, we have a lot of expertise in recurring-revenue businesses like transaction processing, payment processing, software as a service, and technology-enabled services. Some of our recent business services investments include Ingo Money, a risk-decisioning platform for banks and check cashers, and Prolexic Technologies, a cyber-security services company that was recently acquired by Akamai Technologies.

RJ: Could you talk a little bit more about why a partnership with Camden can be advantageous for a company?

Jason: As growth equity investors we are partnering with management teams to help them grow their businesses. This is different than venture capital investing, which is focused on early-stage companies. It is also very different from leveraged buyout investing where the focus is on a company’s cash flow and determining how much debt that company can support.

The philosophy, and the way we approach an investment, is centered around a partnership with the management team. That includes helping them think strategically about ways to grow organically and through acquisitions. It also includes thinking about end goals and working backward from there so we are positioned properly when the time comes. For some companies, helping them grow is making potential customer introductions. For other companies, it is introducing a key management team member or helping work through some of the strategic issues I just mentioned.

RJ: Are there certain characteristics that you look for in management teams or clear distinctions you make about the management teams you are willing to back?

Jason: From Camden’s perspective, we are backing the management team just as much (maybe more) than we are backing the company and whatever business model they are employing. We want their business to be in something we understand and the business model has to make sense to us, but we are looking for experienced management teams where there is mutual trust and benefit to a partnership. We want to invest in companies where we think we can add value and work productively with the management team. This is because in order to grow a company from $10 million in revenue to $100 million plus, it’s going to mean really partnering with that management team to execute on a plan.

RJ: Do you have any examples of recent investments where Camden added significant value and drove a positive outcome for all parties involved?

Jason: One example is a company called Ranir, which is a private-label, oral-care manufacturing and consulting company. If you buy a Walgreens brand toothbrush, a Walmart brand floss, or a CVS brand whitening strip, it was most likely manufactured by Ranir for that retailer.

Before our investment in 2008, the company was primarily U.S. focused and was owned by a leveraged buyout private equity firm. The management team is phenomenal, and prior to our making an investment, we sat down with them and agreed on multiple growth strategies that we would plan to execute on together. It has been a remarkable outcome for all parties because we have exceeded the expectations of our growth strategy, which included new product growth, multiple acquisitions, and expanding internationally. Ranir is now the largest private-label oral-care manufacturer in the world and is growing faster than ever.

RJ: It sounds like you’re very involved and active with both the strategy and the operations of the company. Would you say that is across the board with your portfolio?

Jason: What we do in terms of helping the management team with strategy and operations depends on the company and the situation. However, we invest in sectors that we understand, where we have experience, and when we can add demonstrative value to the board and the company’s growth trajectory.

RJ: It seems like, especially due to your success in the lower middle market growth equity space, that you have a distinct leg up on other funds. Do you find that is the case? Are companies cognizant of what you’re bringing to the table?

Jason: I think we have a leg up because we have stayed focused on lower middle market sized companies in the same three sectors since 1995. We understand the companies, cycles and nuances of those sectors and also have a network of CEOs, mentors, board members, advisors, etc., who have been successful in lower middle market sized companies in those sectors. We’ve found that our most successful investments come through these relationships. In addition, we can use these relationships to help a company grow in many different ways.

RJ: How long does a typical transaction take to complete from start to finish?

Jason: Well, the shortest one that I can think of recently is Prolexic Technologies, which was basically 30 active working days. However, that timeline can sometimes put a lot of strain on the company.

RJ: That seems extremely fast.

Jason: It is extremely fast. I usually tell people that realistically 45-60 days is what you want to shoot for. When we are looking at a company it is going to be in one of our three sectors and we know a lot of other CEOs, board members, and people that we have worked with in that space. So we can use our network to help with due diligence and can execute quickly.

RJ: How many investments are you looking to make over the next 12 to 18 months?

Jason: We normally invest in three to six new companies per year. We invested in six new companies in 2013 and also did a couple follow-on acquisitions, so 2013 was active. In each fund we invest in roughly 12 to 17 companies.

RJ: Is there anything else in particular you’d like to highlight about Camden?

Jason: We have been a top-ranked investment firm in education based on the breadth of education deals we have done over a long period of time. Last year we were ranked the top healthcare technology-investing firm by Pitchbook. Business Services is a broad category, but as I mentioned earlier, we’ve had a lot of successful investments in payment processing, technology enables services, transaction processing and software as a service.

RJ: Jason, thank you so much for your time. This has been a great opportunity to learn more about your firm. Our newsletter is read by over a thousand private company CEOs seeking to better understand their options in the growth capital market.

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