Why This Investment Firm’s ‘Pipeline Has Never Been More Robust’
By Rebecca Ayers – Staff Writer, Dallas Business Journal
While some investment firms are worrying about respective portfolio companies, RedBird Capital Partners Founder and Managing Partner Gerry Cardinale said that his firm’s businesses are doing quite well.
Cardinale said the firm has never been so busy and that its “pipeline has never been more robust.”
RedBird does have a lot of dry powder, Cardinale said, as the firm looks to invest with a risk-adjusted return profile in and out of cycles across a variety of industries, including financial services, energy, sports, leisure and hospitality. The firm, which is based in New York with an office in Dallas, has looked at over 1,500 opportunities to invest in companies in the past six years, and has invested in 20 businesses, he said.
Cardinale explained that the firm’s significant presence in North Texas is tied to the many business partners, companies and families that it works with here.
RedBird does not use a lot of debt when it buys companies, and acquires its portfolio companies in partnership with the families it works with.
“We hedge the cash flow. We don’t use debt,” Cardinale said. “What that means in a current environment like this (is that) we’re actually in a very good position. We can be very opportunistic. We have liquidity. We’re positioned well for this kind of a pullback.”
RedBird Partner Andrew Lauck, who is based in Dallas, said that Texas market have not been immune to the impacts of COVID-19. That community impact has led RedBird to begin purchasing meals at cost from Ampler Group, a restaurant franchisor, with the RedBird team delivering and donating meals to those most in need and to frontline workers. RedBird has donated to Cornerstone Kitchen, UT Southwestern Hospital and other organizations, as well, amid the coronavirus pandemic.
Cardinale and Lauck spoke with the Dallas Business Journal about the firm’s general strategy and deal flow.
What is your firm’s investment strategy?
Gerry Cardinale: Our entire investment business is predicated on partnering and bringing capital that’s aligned with business builders. What we tend to do is we tend to love to build businesses. As a result of that, (we) build businesses as opposed to just buy companies. If we had our choice, we love building the companies with the founders and putting more capital into (them to) support those (companies) over time.
We take a very long-term approach and are very instrumental to our ethos and the way we invest, and the communities that we invest in. … Even though I’m based in New York, very early on in our formation six years ago, we opened our co-office – if you will – in Dallas. We have a lot of great relationships, investors and founders that we work with in Texas and in the Dallas area.
Has your strategy shifted amid COVID-19?
Cardinale: The dialogues that we’ve generated within our network are all about having capital to solve a problem for them. With COVID-19, it tends to be liquidity initially.
I would say that we have been engaged in several discussions prior to COVID where we were looking at making investments in companies for a variety of reasons – M&A possibilities, liquidity possibilities, just growth capital. Now, with the overlay of COVID, these conversations are even more prescient and even more important. I look at it as a continuum, to be honest with you. I don’t really subscribe to this notion of a pre-COVID trade or a post-COVID trade.
Andrew Lauck: Our focus is going to continue to be on lower leverage. Our focus is going to be on businesses that have stable cash flow. It is possible to have a stable cash flow in this environment. … I don’t think our investment principles are going to change at all simply because of the way the landscape looks today.
A really great positive for how we think about the world is that 60 percent of our investments and partner companies either have headquarters or material operations here in Texas. Texas has a great, growing, business-friendly economy. We continue to be focused not just on the areas where we have expertise, as Gerry laid them out, but also making sure that we’re finding ways to support growth and markets that certainly will recover. Nobody knows when and how long (this will last), but good stable businesses with the characteristics we described are going to be winners in the long-term. We remain focused on finding partners and opportunities with those types of characteristics.
What are your thoughts on deal flow for the rest of the year?
Lauck: This has certainly been more of a consumer-led recession than anything else. There’s certainly a number of opportunities – if not, opportunities have grown. Right now, it’s a focus on phase one for a lot of companies with liquidity. But, I think phase two is, as the market reopens and companies look to re-establish their plan of growth, the availability of capital is going to be different today than it was a year ago.
Providers of long-term, patient, stable capital, like us, are going to be well-positioned because partners, and particularly the families and groups that we like to work with, above all else want that stable, long-term, non-panicked approach.
Being disciplined in this market is important, but by no means have we seen any slowdown in opportunities. I think it’s probably the opposite. It’s just a matter of making sure there’s a good balance between doing right by the companies that we own and providing the support to ensure they’re stabilized – and being able to triage the opportunities that come in, to continue to focus on not only growing our business, but providing support to these other businesses to grow when we partner with them.
This interview has been edited for brevity and clarity.