Smooth Operators: The Men Behind One of the Largest Black-Owned Private Equity Firms
Auburn Hills, Michigan-based Syncreon represents one of the most impactful companies that you’ve never heard of. Managing the supply chain needs for corporate leviathans such as General Motors, Dell Computers, and Apple Inc., to name but a few, this global logistics company with 98 facilities in 20 countries plays a significant role in driving the automotive and tech sectors. And ensuring Syncreon maximizes its value is none other than its owner: GenNx360 Capital Partners, one of the nation’s largest black-owned private equity firms.
The principals of GenNx360, led by Lloyd Trotter, the unflappable, adroit former GE executive, and Ron Blaylock, the ambitious, ultra-competitive investment banker, understood the company’s worth nearly a decade ago when it became an early acquisition of the firm. Syncreon perfectly fit GenNx360’s buyout model: a well-run, undervalued, family-owned business services company. It was owned by Michael and Brian Enright, who had merged their Dublin, Ireland-based trucking company with a Michigan-based logistics firm to form Syncreon in 2007. After several rounds of negotiations with the Enrights, GenNx360 eventually acquired a 70% majority stake for a total of $300 million.
A Smart Move Made During the Great Recession
The transaction, however, was completed at the height of the Great Recession, marked by an automotive industry meltdown in which two of its biggest customers—General Motors and Chrysler—were forced into bankruptcy. Despite making the investment “in the thick of the crises,” Blaylock adds, “we were able to do that because we could understand how sticky and important it was to the car manufacturers. It was so integrated into the car manufacturers’ supply chain that whether they were producing 1,000 cars a week or 100 cars a week, they needed Syncreon to remain viable.”
Devastated Chrysler, for example, owed Syncreon money—and loads of it. By getting Syncreon designated as a “strategic supplier,” Blaylock says, “We were able to get our receivables paid 100 cents on the dollar because of that. [Syncreon] was an example of a business that actually did well during the downturn.”
Syncreon proved to be so successful that it still can be found among the firm’s prominent holdings to this day. Says Trotter: “It was $670 million in revenue before we bought it, and it’s now $1.1 billion in revenue. We’ve sold off half of our stake but still own about 34% on it. Our investors are going to be very, very pleased with the total returns.”
Moreover, Blaylock maintains that the Syncreon deal signifies the GenNx360 investment philosophy: “We invest in necessities. That’s one of our themes…companies that are durable and sustainable, and have the best chance of surviving [tough] economic times or disruption.”
Multi-Billion Dollar Portfolio
Over the years, GenNx360 has produced superior returns for its institutional investors—a group that includes New York State Common Retirement Fund, Verizon Communications, The Boeing Co., and General Electric—by actively acquiring and optimizing the value of companies in the middle-market in which deal value does not exceed $1 billion. As a result, the firm has grown capital under management to $1.3 billion across two funds and structured a portfolio of 13 companies in diverse sectors such as aerospace, defense, transportation, and agriculture. In 2017, collective revenues of their portfolio companies totaled a whopping $5 billion.
Composed of a mix of former senior managers from the industrial sector and Wall Street dealmakers, GenNx360’s stellar talent and disciplined processes have placed the firm among the top performers in its competitive set. As such, GenNx360 (No. 4 on the be private equity firms list) has earned the distinction of being the 2018 black enterprise Financial Services Company of the Year.
To truly appreciate GenNx360’s business model, one must trace the company back to its origin. It started with a casual conversation between friends at a barbecue held at the home of Trotter’s daughter in 2004. It quickly transformed into a series of “planning and reality sessions” among Blaylock, Trotter, and two other high-powered GE senior managers, James Shepard and the late Arthur Harper, about the sacrifices and commitments required to build a private equity firm. Recalls Blaylock: “We had worked on the thesis on why it would appeal to investors and how what we were bringing to private equity would be compelling to them.”
Those who would invest in the group were gaining a dream team. Trotter, a legend within corporate and industrial management circles, had served as president and CEO of GE Industrial, a $28 billion business with nearly 80,000 employees across the globe. Harper and Shepard also ran mammoth divisions. Harper, who passed away in September 2017, had ascended to the position of president and CEO of GE Equipment Services, a $7 billion worldwide operation. And Shepard held the position of president and CEO of GE Infrastructure Sensing, a 3,200-employee-strong global business.
Blaylock was a financial powerhouse in his own right, having earned his reputation as CEO of investment bank Blaylock & Co., the 1998 be Financial Services Company of the Year, among the first minority-led managers of corporate bond transactions for the largest publicly traded companies, including Texaco, AT&T, GE, and Google.
The Practice of Continuous Improvement
Blaylock says the group spent months developing their disciplined approach to identifying acquisition prospects. “We said, ‘let’s look at businesses where we have domain expertise, where we’ve had, what I call, on-the-ground experience.’ And that was primarily industrial businesses that I had come to know, but Lloyd, Art, and Jim knew immensely well.”
The partners created a qualitative checklist for acquisition targets: To achieve returns of 20% or more, GenNx360 focused on investing in industrial manufacturing and business services companies with sustainable business models, historical underperformance, and family ownership. As such, it engaged in transactions generally within a range from $50 million to $200 million.
“They were not looking to be overnight wonders and had the discipline of acquiring attractive companies for the right price,” says Laurence Morse, co-founder of private equity fund of funds Fairview Capital (No. 3 on the private equity firms list). “The team of Ron and Lloyd packed an extraordinary one-two punch. They’re very good on the front end in convincing people, a lot of times these are family-owned companies, in selling their assets to them [and] that they’re going to be able to do things to create wealth for those people as well as themselves and their investors.”
Moreover, having a group of executives well-versed in the Kaizen management practice of continuous improvement enabled them to make the operational enhancements to boost the value of target companies. That means being able to engage in growth strategies that can be both organic and inorganic, which requires “add-on” acquisitions to complement or bolster the processes or offerings of the companies that have been acquired.
Morse says the managerial and deal-making horsepower of GenNx360—so named for its demonstration as a next-generation private equity firm focusing on value creation through continuous improvement of portfolio companies—led Fairview to become one of its first investors, ponying up $40 million for its first fund. Shortly afterward, Princeton University came aboard. As a result, Trotter says, the partners were able to raise $600 million from “a good group of A-list corporate pension funds.”
Each week at the firm’s midtown Manhattan headquarters, members of the GenNx360 team gather for a series of critical and oftentimes spirited sessions, including the New Deal Review, in which they discuss new investment ideas to pursue using “Global Megatrends” to gain strategic insight into factors that will impact sectors, products, and markets, among other areas.
“We learned that because we are hands-on operators, we prefer that we have the majority share in a business. It’s a little work but we might as well get the majority of the returns,” Trotter says. “We control the decisions, and we’re driving the outcomes. ”
Blaylock says that the “next gate” is the investment committee, which engages in constant due diligence: “You’re meeting with the management and asking them questions as well as checking customers. When you come out of that with a yes, you then have to figure out the price that you’re willing to pay. We have a playbook on how we are going to add value and what we are going to focus on during the first 100 days. We get them to focus on the two that move the needle the quickest as drivers of value.”
Other top-level meetings include portfolio management to ensure the right balance of holdings and the exit committee, which determines if deal teams are meeting set value-creation timelines.
Each acquisition, Trotter says, has an operating partner that oversees the management of the company as well as two members of GenNx360—at least one of the senior partners—on every portfolio company board. The firm tends to hold on to investments between three to five years before looking at the exit. However, there have been some investments with shorter timetables.
Take Truck Bodies & Equipment International Inc. (TBEI), a Lake Crystal, Minnesota-based industrial machinery manufacturer that GenNx360 acquired in 2015. Working with Blaylock, Latasha Akoma, an operating partner who has close to 20 years of experience in manufacturing and business strategies with Harley-Davidson and Chrysler, was heavily engaged in TBEI’s operational oversight. “We get involved in the operational engagement with each of the portfolio companies to drive what we call the vital three—expanding sales revenue, generating EBITDA [earnings before interest, taxes, depreciation and amortization] and, of course, managing cash from cash flow to pay down debt and strengthen the business,” she says. “We really liked this company, not only due to diversification of its product, but we also liked the management team.”
Akoma began implementation of the operational playbook for the maker of dump bodies—a motor-truck or trailer body that can be manipulated to discharge its contents by gravity—and trailer accessories. Recalls Akoma: “We really had to focus on the strategic objectives and implement them with speed so that we can get out of the business in enough time for us to realize benefits, but also leave some growth for the next buyer.”
First, Akoma bolstered the management team to free up the CEO to focus on strategic acquisitions and commercial expansion. The second strategic objective was to grow the business organically. To improve operational efficiency, Akoma applied “The Trotter Matrix,” a management-performance enhancement tool the high-powered executive Trotter put in place at GE. “They were able to quickly apply the tools,” she says. “That business ended up having productivity initiatives that amount to about $4 million.”
Next, GenNx360 looked at “innovative growth through a bolt-on acquisition,” purchasing Travis Trailer & Body Co., a producer of aluminum trailers, in 2016 to “increase our addressable market [from] $700 million to $1.5 billion,” Akoma says. “With that acquisition, we created additional synergies that we were able to roll up and say, ‘This is a great time to look at exiting.’”
Within a year, Blaylock, Akoma, and the deal team partnered with a bank and found a strategic buyer: In 2017, TBEI was acquired by Federal Signal Corp. for $270 million. Says Akoma: “In a matter of 20 months we were able to grow the revenue by 55%; we expanded the EBIDTA by 67% and generated so much free cash flow that we were able to pay down debt. Having that bolt-on acquisition gave us the stability to expand our addressable market and we were able to sell the business to a strategic [buyer] with 76% IRR [internal rate of return].”
How to Become One of the Nation’s Largest Black-Owned Private Equity Firms
The strength of GenNx360 is that it sticks closely to its investment philosophy and operational DNA and does not venture outside its core. “I have this saying,” Trotter states: “Never fall in love with an asset that you don’t own. Look at it realistically, look at it for what it is, and don’t try and explain away stuff that doesn’t make sense.”
Key to the firm’s forward movement has been the fact that it’s a magnet for top financial and operating talent—much needed as they develop a third fund. “People want to be on teams that can win and that are sustainable. And frankly, at the top of that is a culture of ownership, a culture of winning, a culture of performing and a culture of no jerks,” says Blaylock. “We’re big on inclusion because that’s how you get the best ideas. That’s how you get to challenge assumptions.’
Morse, who serves on the firm’s advisory board, says that GenNx360 has driven diversity in areas of business where there has been a noticeable absence of managers of color. This infusion of such African American talent has been a part of the grand vision of Trotter and Blaylock. “They conceived this dream of having a private equity firm where they were going to go out and be able to acquire assets in core industries, and build them, grow them, sell them, make money,” he says. “It was also part of that dream that they were going to be bringing in not only young African Americans to train as investors, to become general partners in the firm. It would also provide opportunities in the companies that they would acquire to bring African Americans in as both senior management and at the board level. They’re bringing in African Americans who have the particular skill set, knowledge to add value to that particular situation. It’s a beautiful thing to see but it’s done with forethought. It’s not happenstance. This is by design.”