Episode 27: Dancing Between the Toes of Elephants: The Complete Guide to PE

Speaker A: Welcome to Beer Stories for Private Equity. Join us for our weekly happy hour tapping into 27 years of PE experience one pint at a time. This podcast is powered by Monogram Group. Find us@monogramgroup.com this episode is sponsored by Private Equity Professional, PE's news leader since 2007. Stay connected to the latest news, insights and trends in private equity@peprofessional.com welcome to episode 27 of Beer Stores for Private Equity. On today's show, we're excited to be joined by Mike Magliaccetti, operating partner at Riverside Partners in Boston. If you'd like to be considered as a guest in our lineup, please email us at podcastonogramgroup. And for Monogram Group, here's your host, Scott Markman. Please fasten your seat belts. So, welcome to episode 27 of Beer Stores for Private Equity. Today is my absolute, uh, treat and honor to be joined by Mike Magliachetti, who is operating partner at Riverside Partners in Boston. Mike, welcome to the podcast.

Speaker B: Thank you, Scott. Great to be here.

Speaker A: So, in the spirit of trying to sort of curate a range of, uh, individuals who have a tangential or direct correlation into private equity, Mike has written a book and it is called Dancing between the Toes of Elephants. The book is fantastic. It's, you know, really valuable, insightful, and, and it's all about anecdotes that are kind of correlated to sayings that Mike collected over time around private equity to help he, as an outsider, understand this kind of inside baseball world of, uh, private equity. So before we get into that, we always like to get into, um, our guest's background. So Mike, um, if you could just share with our listeners sort of, you know, where you grew up and where you went to undergrad.

Speaker B: Yeah, yeah, sure. I, um, I actually grew up, uh, outside of Boston in a town called Malden. For my undergraduate, I went to Northeastern, uh, University and majored uh, in chemical engineering and, and then continued on and got my PhD in chemical engineering and from uh, UMass Amherst. And uh, after my first assignment, I, uh, my company sent me to get an MBA while I was working full time, a full time mba. And I, uh, completed uh, that shortly thereafter.

Speaker A: So you mentioned Northeastern. And apparently it's sort of become a bit of a hottie school, um, to, to this uh, generation, which is fantastic. But uh, it's, you know, apparently like the reputation is really accelerating.

Speaker B: Yeah, you know, for me it was interesting, Scott. Um, I'm privileged to come from a working class background. My dad was a maintenance man and my mother and her brother had an Italian bakery outside of the city of Boston where I worked. They couldn't afford to send me and my brother to, to college. But uh, so I was basically on my own financially. And um, you could make a dent in your tuition by working uh, on these co op assignments. And uh, I had a terrific assignment and it was uh, I worked at the US Army Materials Research Command with many PhD chemists and chemical engineers which who really mentored me for that next phase in my career. So just a terrific experience. I was just at Northeastern yesterday actually speaking at the business school. I was invited to speak at the business school.

Speaker A: Wow. How cool is that? And ah, certainly the triumphal graduate coming back to ah, share some pearls of wisdom.

Speaker B: Very cool.

Speaker A: Um, by the way, quick aside, I have to share this, um, another thing that we share in common. So my mom was raised in a family of bakers. My mom was from Allentown, Pennsylvania and they were off the boat immigrants. And um, they would buy a bakery, they'd build it up, they'd sell it and move on to the next one in the metro sort of Allentown area. They may be on three or four, but my mom and her siblings worked in the bakery until she got married at 35. All right, so you, you go to undergrad and get your PhD and then what was this the starting point of your career that led to kind of becoming involved with private equity.

Speaker B: After I had, I had got, uh, my mba, my career really moved more into general management. I had the good fortune to serve as CEO of three companies through successful sale transactions. One was a company called Eurosurge and then, uh, an orthopedics business called rmh. And my last company was a company called Claros, which was an oncology diagnostics business.

Speaker A: So because of that sort of management leadership position you were in with healthcare companies and it sort of gets you up to the front door of this thing called private equity. So what was that inflection moment that you got to, to open the door and become one of the insiders?

Speaker B: Uh, I'll tell you, it was really serendipitous. I was running Claros my first year, my tenure at Claros, and a mute and a mutual friend put me together with the managing general partner at Riverside. We clicked right away and uh, he asked me if I wanted to join, uh, Riverside's healthcare Advisory Board to really help with diligence on opportunities, uh, serve as an independent board member here and there and contribute, uh, wherever possible. I did it for almost four years, uh, served as an advisor. And when my company, when Claros transacted, I stayed along for about a year, uh, to run the global diagnostics business. But I knew I, um, wanted to do something different. I had an offer to join a neurology medical device company as CEO, and I went to the managing partner at Riverside for a reference, and he said, hold on, you know, time out. Why don't you think about joining us as a partner? We've been working together for five years. You know, I thought about it, and I knew I had the chemistry box checked over, uh, those five years. I saw how they treated each other as partners, but more importantly, I saw how they behaved towards the management teams of the companies they invested in, because I had been on that side of the equation in my career. I'm sure you have, and I'm sure the listeners have had some great mentors in their careers. I definitely have. I've also had some people I couldn't take another 30 seconds with in a boardroom.

Speaker A: Oh, yeah. Oh, yeah.

Speaker B: And I didn't see any of those shenanigans. It was just all about plugging in. And it has to do with where these companies are in their life cycle. And we invest, but just about plugging in and adding value and partnering, and you pick your head up, Scott. And 13 years goes by. I've been at Riverside for 13 years, and I guess the lesson learned is if you like what you do and who you do with, the time just goes by, you know.

Speaker A: All right, um, before we get any further in, and we have lots to cover, um, I have to take a moment to, um, honor our heritage and bring in my favorite beer, Kona Blue. A big wave selected and named, um, in honor of our. Our mascot, uh, Kona. Mike Alden, Retriever, unfortunately passed away this summer, as, uh, some of our listeners may know. And so in Kona's memory and, uh, delighting in enjoying the afternoon and talking to Mike. Here we go. Uh, and no agency can be without branded glass.

Speaker B: There you go. Here's my glass. I'm, uh, honoring a little bit different geography here. This comes from the Russian, uh, uh, area of the world.

Speaker A: Uh, okay, that looks like water, but I'm sure it's not. Um, anyway, you join Riverside, you start to be an operating partner. Over that block of time, how many, um, uh, portfolio companies have you interacted with, Scott?

Speaker B: We look at about 300 opportunities a year. Um, uh, and maybe in a good year, we'll make two or three investments. A tremendous amount of discipline, uh, diligence that goes into it, as I'm sure you know.

Speaker A: And does your firm sort of, uh, lean more towards the medical device side of it versus let's say anesthesiology roll ups or laboratory services or something?

Speaker B: You know, since day one we've been focused just in healthcare and technology, but under the healthcare umbrella. I like to say that we sell Piction shovels to the gold miners. You know, we won't take binary therapeutic risk or pure play medical device risk, but we'll invest in companies that provide services to those who do. Our sweet spot is really, I guess you'd refer to it as lower middle market. Um, these are founder, majority management owned companies. Companies that are on a healthy growth trajectory, you know, not distressed in any way. We're not a turnaround firm. And honestly Scott, if I've learned anything over the past 13 years, is it these companies are good companies. They'd be good companies whether or not they met us. They're just at a point where, you know, the founders have a good deal of sweat equity into the business. A good deal, their net worth perhaps concentrated in the company. And so for us, we have to believe that we can plug in and add value. We're not an investor that shows up once a quarter for board meetings and we're not Excel spreadsheet jockeys that micromanage. Uh, it's just all about how we can plug in and, and create value.

Speaker A: I want to now sort of transition into the origin story of this book because this is important. Mike describes this in, I think the forward of the book, that he was pretty much an outsider into private equity, obviously highly experienced, educated and accomplished. But coming into this kind of universe called private equity as both of that five year sort of first block of time where there was more of like an adjunct correlation relationship. But then you join the house full time and it's, and it's like you're, you know, like the new kid, you know, in the school. And, and you had to sort of learn and feel your way through this. And so the way in which you sort of manage that journey was collecting

Speaker B: idioms, you know, and if I go back to my time as a CEO and those three different assignments, anytime I was privileged enough to get offered a CEO role, I never felt I was qualified. Not because of imposter syndrome, but because of the fact that, for example, I got tapped to run an orthopedics company and I had never spent a day in orthopedics. When I, uh, made that move into private equity, even though I had had PE investors VC investors, family office investors in my companies. It was just as steep of a learning curve. So I always had a process as a new CEO or, or you know, any of these times. I would always, as simple as it sounds, Scott, I would always listen three times before I spoke, you know, ask a lot of questions, completely immerse myself into the, into the company. And I did the same thing at Riverside when I joined, but I did something a little bit differently. I kept a journal. And anytime anybody, you know, one of my colleagues used a phrase that I didn't quite understand or an idiom that I thought was really clever and descript, maybe, so absurd in disbelief, I'd roll my eyes at. I wrote it down. I wrote down what it meant, how it was used, and a little bit of a blurb about it. And I kept this as a living document over the years. Uh, you know, meeting with I bankers with LPs, you know, at conferences. And I was speaking to a professor at Columbia who asked me rather bluntly, how the hell did Someone with a PhD in chemical engineering ever land in private equity as an investor? You know, what was that journey like? Uh, and so I shared with him my story and my learning process and this journal was so helpful for me. And he stopped in his tracks and he said, if you could turn that journal into a manuscript for a book. So I, I kind of double clicked on that, checked, checked with a few of my um, folks, uh, in my network if it, if it had made sense. And I received nothing but positive feedback. So rounding the corner on 2022, I decided to, for my New Year's resolution, to take a run at it and go from paper to word document and pick my head up two years later and I had a 350 page manuscript. I'm so excited about the people that I'm meeting and the doors that are opening not only for myself personally, but also for Riverside too. Uh, it's really interesting the connections that I'm making that this is kind of leading to.

Speaker A: You had the content, but then there's writing a book. If you've never done it, I haven't. It's like, it's daunting and there's a set of skills to it. So what are one or two things about just undertaking the, you know, the climb of the mountain of writing a book that was like, you didn't really foresee, but it was kind of cool that you encountered this and sort of slay the dragon, just the process of doing this. What are the one or two things

Speaker B: there were many times where I said to my wife, geez, I think, I hope I'm not wasting my time with this. I hope this is going to amount to something or be meaningful to somebody. Uh, but I, you know, I start, I had this outline, I had this journal to start with and I just, you know, and I'd spent, I started with every night after dinner or on flights, just spending time writing and recollecting these, these, these stories or these situations. And the toughest part about it honestly was editing and going back over it and over it again. Finally my wife had to tell me, just stop. You know, it's, you know, it's, you always think you're, you're shooting for perfection. Um, and uh, it was just a point where I had to pull up and say, enough is enough. I'm done.

Speaker A: All right, so, um, one of the interesting and enjoyable pieces to this book is that there are 237 phrases or idioms. Each one is a backstory as to what is it, how did you come across it, how did you interact with the thought behind it. But clearly from the reader's perspective, it's like a Dan, uh, Brown, you know, DaVinci Code, you know, page turner. And I could, and also because of the structure of it, you could dance around, right? You could, I could scan the 237. Oh number 222. I know exactly what that means. Read it and then go back to number 65 or whatever. So the way it's structured is just for easy consumption.

Speaker B: Mhm. Absolutely. It's a great airplane book.

Speaker A: All right, so the second kind of background question I want to ask is, did you or the literary agent decide this was the title of the book? Dancing between the Toes of Elements. Obviously it's a very funny thing, but out of 237 to choose from, why this?

Speaker B: It's actually a, uh, uh, story from the book, uh, that uh, the title was derived from. Like any private equity firm, we have a deal team. And we were looking at a company that was playing uh, in the tech enabled healthcare services space. And this company provided an ancillary service that was more like an adjunct. And so when we dove into diligence on the business, I like to go off the beaten path during diligence and through our uh, healthcare advisory board at Riverside, which I now chair, I floated this opportunity by them. They in turn put me in touch with a few executives at some of these large EHR companies. They had the same technology, this ancillary service technology, but they had it on a Shelf. Their strategy, I learned, was to come down market to pursue these tributaries and offer up this service as a giveaway. So I brought this information to a deal team meeting. One of my colleagues who was very frustrated with what I found. I was voting no. And out of frustration he said, mike, Mike, Mike, you know, uh, you worry too much. There's a business here Dancing between the Toes of Elephants. So I had to write that down. I knew at that point I had my title, Dancing between the Toes of Elephants.

Speaker A: All right, so Mike and I have each gone through the book and curated five favorite expressions out of the 237. Give it a go, Mike. And um, uh, let's dive in. And again, hopefully this will be a little bit of wonderful taste for our listeners as to what the book is all about.

Speaker B: Yeah, thanks, Scott. Actually, dancing between the Toes of Elephants was my first one. But, um, uh, I'll go to my next one which is, uh, the Action is the Juice. And for, uh, anyone who has seen the movie Heat starring Robert De Niro and Al Pacino, there's a pivotal scene in the movie where Robert De Niro is asking his crew of criminals who uh, are planning a bank heist, a major bank heist, if they're in or they're out. And so he went around to them asking, are you in or are you out? And everybody is in. It comes to Tom Sizemore. He's, he's thinking about it and he says, I'm in. For me, the action is the Juice. So the, the adrenaline rush far outweighs the risk. And looking at add on opportunities to our portfolio companies, we'll do lots of add ons, uh, in the time of our hold period. We're looking at opportunities that there, there's consolidation by um, back office, um, uh, consolidation, uh, pricing leverage or executive salaries that may be leaving from the. From. So we're looking at an opportunity. It's an add on acquisition for one of our portfolio companies. Uh, sketch, you know, okay, management team, maybe B, B minus, um, bloated back office, nice customer list. So we really thought we could go more deeply into their customer list, merge that in. And so we had the decision to make around the table. Do we want to move forward? Yes or no? Everybody was in. And it came to one of my colleagues and uh, he thought about it for a moment. He's hilarious, by the way. Um, and was scribbling on his notepad and I couldn't quite figure out what he saw that I didn't see because he was hesitating. Then he finally said, you know, for me, the action is the juice, and there's a hell of a lot of juice and Ebitda, multiple arbitrage.

Speaker A: All right, so that's two.

Speaker B: Number three, you are who you pretend to be. And, uh, that was really, really very meaningful for me when I. When my company, Claros was acquired, it was acquired by Opco Health, which was run by billionaire entrepreneur Dr. Philip Frost. I learned very quickly that either he loves you or he hates you. And if it's the latter, you're not around very long. He invited me to start presenting with him at these investment banking conferences, these large conferences like JP Morgan, Citibank, Lazard, and, uh, he wanted me, just me, to present with him. He'd do the first five minutes and I would do the remaining 25. And the first conference was the Citibank conference at the Waldorf Astoria Hotel in New York City in front of 3, 350 people. The morning of the presentation, we were having breakfast together at the Pierre Hotel. And I was completely in a zone. I was just going through the slides in my head. He took a sip of his coffee and he looked at me and he said, what's going on, Mike? You feeling okay? And I said, yeah, uh, I'm fine. I'm just completely engrossed in this presentation. I want it to go right for us. He nodded and he leaned forward and he said to me, listen, this is going to be the first of many of these types of presentations that we're going to make together. Just think about the fact that you know more about the company and the technology than anyone in the audience knows. When he leaned in and he said, most importantly, remember, you are who you pretend to be. You got this. Let's go. And at that point, Scott, I felt this, this wave of calmness come over me. We took the market cap of that company from 1 billion, uh, to $5 billion. But he and I, we still stay in touch today. I've, I've had several different parts of the book that are dedicated to him. Uh, he was a very, very meaningful mentor to me.

Speaker A: All right, number four.

Speaker B: Number four coin. Um, operated. I've had the, uh, uh, as I say, good fortune to, to live through the, the wave of minimally invasive technologies and medical devices, uh, uh, back in the 90s and early 2000s and even today with robotics. But, you know, these are technologies that can change the way medicine is practiced. With that comes challenges. And I was running a company, Eurosurge, that had, we had a whole portfolio of products. One of which under development was uh, uh, a device that would really have a positive effect on patients suffering from a really debilitating urological condition. Uh, I had embarked on a global clinical trial. We got through the clinical trial. We were preparing for that FDA submission. At the same time my thoughts were turning towards commercialization. And so I, my strategy at the time, there was no zoom. So had to go and travel and meet face to face. And I was traveling around the world yet again, meeting all of our investigators, meeting all these folks who were going to present on the technology at global conferences publish. I finally came to uh, one of the physicians at uh, Cleveland Clinic and he was absolutely on board. At the end of the conversation he said, you know, so how much do we get reimbursed for this, for using it? And I said well you know, I have to go ahead and I have to submit. Uh, you know, we're engaging a law firm to help us to submit for, to CMS for a reimbursement code and a value. And he said, so how long is that going to take? Well you know, it can take six months, it can take longer. He goes, mike, you have to understand, I'm coin operated. You put the coin in, I operate. If this, if, if I can't get paid for using this technology, it doesn't stand a snowball's chance in hell of being adopted. So that was a harsh reality for me. It was a real lesson learned. Because when does clinical utility, clinical patient value outweigh financial reward? Especially today if you think about what we're going through. And number five is, uh, catch and clean the fish. When we invest in a company, you know, they're you know, functionally um, underdeveloped. So the ability to go ahead and uh, um, hire uh, a VP of sales and marketing inside sales field sales, account account management, marketing. You know, you build up this engine, uh, you need to have operations in line to be able to clean those fish that you're going to catch. When I was running a, running a business, it was a PE funded company and I was in front of one of the chief medical officer of the one, one of the largest dialysis, um, chains in the world along with my, my VP of sales and marketing. And he, he was a highly, uh, technical guy. He had a PhD MD and he was completely bought in on our technology. It was a new technology. Well, he ended the conversation by saying, how about we start with uh, a thousand units, a thousand hardware units and we'll kind of, we'll, we'll, we'll we'll start there. And, and myself, I was like, oh, my God. You know, the biggest, the, the biggest, um, batch, uh, we've made is like 50. And my VP of sales and marketing immediately, Absolutely. When the meeting ended, as we were walking out to the elevator, he said, I know where you're going. I know, I, I, I, I know what's happening here. You just better damn well be able to clean the fish that you catch with me. So. It's so true. It's so true. We see it today. You only have one chance to make a good impression with a client. And, uh, so it's so important.

Speaker A: All right, now's my turn. And what I'm going to do is start with what was my criteria for sort of picking the ones I favored? Number one. Um, I've always been a fan of metaphors, because what's fascinating to me about what Mike has done is it correlates into what we do. Because brands are about narratives. It's kind of storytelling. And oftentimes we rely upon imagery and associations to further that cause and blend it into literal. I'll, uh, call it language and terminology. So, uh, number 11, put more wood behind the arrow. What Mike writes here is the phrase put more wood behind the arrow is a vivid metaphor that conveys the idea of adding greater substance, energy, or resources to, to a particular effort in order to increase its chances of success. Okay. He wrote in a sentence, a wonderful sentence, exactly the thought that popped in my head in one second. The origin story of that in its application into a very complex business finance focused framework. But as the kind of thing again, like two guys would say at the bar, I thought was pretty cool. Number 59, fixing the plane while flying it. Uh, we go through this all the time in the work that we do, because a lot of the work that we do in brand architecture and strategy involves integrations, and you can carefully manage that transition, but it's still in development, and it can times be uncomfortable because the founder's name is over the door and it's going to go away. And people don't like that. But it's for the greater good. Number three, Herding cats is easier if you use a pitchfork is easier if you use a pitchfork is pretty direct. I just, I laughed out loud when I saw that number 109 is pattern recognition, and it is at the heart of private equity. It was about eight years ago that I heard a partner at a PE firm use that phrase, and he sort of said his most elemental thing, the skill and the process of Doing what private equity professionals do. It involves pattern recognition. I was like, it stopped me. And I just have not forgotten that.

Speaker B: Yeah, so true.

Speaker A: Number one 14. And again, this could be my favorite. The price of success is never too high compared to the cost of regret. So, to our listeners, where did that come from?

Speaker B: I was being offered a role at a company that was a turnaround. And I went to one of my mentors, uh, and he just said, you know, think about the playbook that you're going to bring to this company. You're too young to be asking yourself, what if for the rest of your career, you know, that price of regret? Uh, and so that's how this came about. Um, he had said that to me. The price of success is never too high compared to the cost of regret.

Speaker A: You know, we are among the folks that I'll call it made the leap of faith, you know, with a lot of thought and rigor and understanding their bumps and bruises and ups and downs and all that stuff. But you still made the leap. I, I jokingly refer to entrepreneurship as the dark side. You know, it's like, welcome to the dark side, Luke. And it's like, it's not right for everybody. You're either cut off for it or you're not. But to do this at all, we decided that a long time ago. Right. And so I really, really appreciate that. Well, um, we're going to start to wrap up a little bit. We always want to end on a personal note as we start. And so just Mike, just wanted to share, um, some, uh, just some details about your family, favorite places to travel, things like that.

Speaker B: Yeah, you know, um, uh, like I said, I have two adult children, but I'm just so happy. Uh, I'm a new, uh, grandfather as of two weeks ago, so I'm, Yeah, just over the moon, excited about it as far as travel goes. Um, you know, we have a place on the coast of Maine, and it's our sanctuary. And I like nothing more than getting out a couple of miles on a sea kayak out in the ocean. And it's just a great place to be and unwind.

Speaker A: And then the last question, the most important question of the day. Are you ready?

Speaker B: Yes.

Speaker A: Is Drake. Is Drake. May the second coming of Tom Brady.

Speaker B: Oh, my goodness. I think it's a long way to go to be the field general that, uh, Brady was and reading defenses and. But, uh, he makes it fun to watch the Patriots again, for sure.

Speaker A: So it's a kid. Anyway, um, Mike, this has just been an absolute treat and Um, I hope that our listeners enjoy this as much as I did, and we will look forward to getting together down the road.

Speaker B: Thanks so much. Appreciate it, Scott Scott thanks for the opportunity. It's a lot of fun.

Speaker A: From all of us at Monogram Group, thanks for tuning in to Beer stories for Private Equity Episode 27. This episode is sponsored by Private Equity Professional, PE's news leader since 2007. Stay connected to the latest news, insights and trends in private equity@peprofessional.com don't forget to hit the subscribe button and you'll be notified as we release new episodes. Please check out the show notes in the description from today's episode. Our email is podcastonogramgroup.com Feel free to email us with any comments or questions and we'll try to answer them in our next episode.