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Align Capital Partners’ Chris Jones and Steve Dyke

Add-on acquisitions need to be part of a growth strategy, not the strategy itself

Chris Jones and Steve Dyke

October 12, 2018

By: Mark Scott

Chris Jones and Steve Dyke have completed more than 90 transactions over the past 15 years, building a wealth of M&A experience in the lower end of the middle market business sector. But numbers aren’t what drives this dynamic dealmaking duo, says Jones.

“This is a judgment business,” says Jones, who like Dyke, is a managing partner and co-founder at Align Capital Partners. “We spend a lot of time assessing the people with whom we’re going to partner and then really learning about new businesses and new industries. We’re constantly amazed by how entrepreneurs have figured out some really amazing ways to create a business and make a living for themselves and for their employees.”

Align Capital Partners is a $325 million, growth-oriented private equity firm launched by Jones, Dyke and Rob Langley two years ago following their exit from The Riverside Co. Earlier this month, ACP announced its 10th transaction, a recapitalization of a Boston-based tech-enabled business process outsourcing provider.

“We’ve got a long track record of buy-and-build strategies,” Dyke says. “It’s something that we are deploying across every company in our portfolio. We’ve already done four add-on acquisitions with our portfolio companies in the first two years.”

In this week’s Dealmaker Q&A, Jones and Dyke talk about their approach to helping companies maximize their growth potential and their view on the economy heading into 2019, as well as how that might affect their approach to making new deals.

How do you approach a new partnership?

Jones: Before we buy a business, we certainly spend a lot of time in due diligence making sure we understand the business, the industry and the financial results — all of those confirmatory items. We spend just as much time making sure we’re partnering with people we can work well with together, people who are open to new ideas and who would share our philosophy for trying to bring some new ideas and perspective into the business to improve or accelerate growth. The most self-aware management teams are those who appreciate that the perspective and skills that got them from startup to this point of a sale aren’t necessarily the things that will allow them to continue to grow successfully.

What if the company you are acquiring is itself looking to make acquisitions?

Dyke: When it comes to making add-on acquisitions, they need to support the overall business strategy. They can’t be the strategy itself, if you can see the differentiation. What we want to be doing with management teams during the due diligence phase before we even own the business is really working very collaboratively to talk about, ‘OK, what are the goals? What are we trying to achieve with this investment? What does the management team want to achieve?’ Getting that shared set of expectations and strategy put in place is important. Then, it’s asking, ‘Should we build rather than buy? Or is there a potential target out there that would fill a lot of the needs that we have in this particular portfolio company?’

Jones: People who haven’t done a lot of add-on acquisitions underappreciate how hard they are to complete and complete well. You think about a company that is going to go and buy another company. It sounds great, it sounds easy. It’s really hard to do well. It requires a lot of extra effort and work on top of your normal day jobs. Teams that don’t have a financial partner that has that experience or capital or can bring the resources that can do it, they often underappreciate just how difficult it is to actually complete the acquisition. Once you buy a company, you better have a really clear game plan as to what you’re going to do with it.

What are some keys to being a successful buyer in a seller’s market?

Dyke: One of the things we’ve focused on at Align is making sure you stick to your knitting. Focus on what you know best when it comes to companies and industries. What that allows you to do is to build a lot of conviction going into a process. We know what we’re looking for and we know what’s a good fit. By having that conviction, we can deliver a much higher speed and certainty of close for sellers and their advisers. That’s important.

All of us years and years ago used to be in investment banking. We know what sellers are looking for when they get into a process. We also have sold a lot of our portfolio companies over the years as well. We know what is important to us in those situations. Having a buyer that comes to the table with a lot of conviction and has demonstrated that they’ve done a lot of work on the deal, that they understood the challenges of the industry and the business and they were bringing a flexible approach to this individual situation, we just found we were more successful in those types of processes.

How do you view the economy going forward?

Dyke: An obvious concern is around a recession. When is the economy going to cycle again? We’re very long into a slow recovery, but everybody believes that a recession is coming at some point. We just don’t know exactly when. That has caused us to put a lot of thought into the opportunities we’re pursuing to make sure when a recession comes, we have a portfolio that should hold up pretty well and come out of a recession faster than some other companies.

Jones: There are things we can’t predict or control that we certainly pay attention to when we think about investing and where we are investing. A shock to the system or a cyclical change to the economy would impact the growth outlook and that’s very much on our mind. But we’re trying to address that by having a clearly defined view of the types of companies we invest in. We put an emphasis on those companies that have highly recurring, driven demand patterns and/or those we can help scale early on through add-on acquisitions.