Private Equity Group Interview: Kayne Anderson Capital Advisors

Today’s private equity interview is with Kayne Anderson Capital Advisors, LP. The views expressed in this interview are representative of the opinions of the interviewee and do not represent InvestmentBank.com, Merit Harbor Group, LLC or its affiliates. 

Can you please provide a brief history of your firm? Its founders?

Kayne Anderson Capital Advisors was founded in 1984 by John Anderson and Ric Kayne. Historically, we’ve invested a majority of our capital in the oil and gas space. However, in the early 2000s we created several different investment strategies to help diversify our investments. Our growth private equity group, which was formed in 2002, has deployed more than $600 million since inception.

Tell us about your typical deal? Size? Industry? Geographic locale? Can you please provide an example?

We typically invest $5-$25 million in companies that generate $5-$50 million in revenue. Although we are not limited to particular industries, we leverage our past experiences in operations, investment banking, and private equity to place emphasis on niche sectors requiring specialized knowledge and skills. Target industries where the team has prior experience include businesses services, education, energy technology, healthcare, human capital management, information management, logistics/distribution, mobile/telecom, software, and transaction processing.

Additionally, we tend to invest in companies located in underserved geographies compared to larger metropolitan cities such as San Francisco. For example, we recently invested in Birmingham, Alabama-based Atlas RFID, a provider of industrial construction materials management software.

How are your deals typically structured? Are you most often a majority investor or a minority investor? Do you prefer to keep existing management in place or do you simply take over the existing business with your own management?

We strictly make minority, non-control investments and tailor the structure of our investment to the unique situation of the each company, rather than a one-size-fits-all strategy commonplace in the industry. As minority investors, we strongly prefer keeping existing management in place. Kayne Partners seeks to build substantial relationships with management teams over time, placing high value in proper fit rather than rushing into a deal.

What makes you different than other private equity firms? How does your differentiation make you a better buyer in a crowded market?

We are partners and investors, offering a proven platform to accelerate the growth path of portfolio companies and help unique businesses realize their aspirations. Many of our limited partners generated their own wealth as successful entrepreneurs and our team is able to provide insight, connections, and advice to our portfolio companies. The entrepreneurs we partner with are cutting edge, exceptional leaders. This is why we take a hands-off approach and do not get involved in the day-to-day operations, instead providing guidance and support. However, our team will oftentimes maintain an active corporate development role in finding exit opportunities, customer introductions, partnerships and acquisitions prior to, during and after investment. Additionally, our direct sourcing method helps us forge the strong relationships that we have with our portfolio companies.

What do you look for when you are courting target companies? What separates a good company from a great company? What are mistakes you have seen from targets that, if remedied, could make the process smoother for all involved?

We look for companies with a strong, seasoned management team that operate in an attractive industry niche with clear competitive advantages and asset light/capital efficient business models. We advise the companies we work with to take the least amount of capital to make the most amount of difference. Often we see companies who have over-raised capital unnecessarily when they could have given up less ownership of the company. Furthermore, we tend to be upfront and transparent throughout the diligence process. We do not sign up deals quickly only to renegotiate terms during the diligence process.

What added value do you bring to the process? How can you further assist sellers in preparing them to be ready for exit?

Companies we target are profit generating businesses that have various options for funding, but choose to work with us because we have more to offer than capital. Examples of our value-add in the past include leveraging the Kayne network to make client and customer introductions, sourcing and funding add-on acquisition opportunities, sharing best practices and engaging in-house industry experts as strategic advisors. Our thorough diligence process allows our team to identify issues within the company, create a clear road map to rectify them, introduce corporate governance procedures and create a board, all of which enables maximization of value to all shareholders. Additionally, we act as the company’s advocate during the sales process.

What is your typical investment horizon? How does your mission and goals for the fund impact your investment decisions and how you treat sellers’ businesses both short and long term?

Our typical investment horizon is 3 to 7 years. Kayne Anderson has a more patient view towards its investments than many other investors and, accordingly, confers with the management of our partner companies, which understands the business better than anyone, on appropriate exit timing for a liquidity event.

Tell us about your buy-side process including the time it typically takes from initial engagement, through indication of interest, due diligence and through final close.

A typical buy-side process begins with an introductory call with management, which allows us to learn about the company at a high level while also giving the company the opportunity to learn about our fund. We engage in multiple calls and meetings with management teams prior to investment to establish a strong relationship with the companies we invest in. Our diligence process typically averages 60 to 90 days, which allows our team to best understand the business and industry in which the company operates in.

Tell us something interesting about your fund, its founders or managers that is typically not widespread knowledge.

One of our founders was John Anderson, successful entrepreneur and longtime UCLA supporter whose name graces the UCLA Anderson School of Management. Anderson’s white hat approach to business has permeated throughout our entire organization. For example, Anderson once said, “I was very lucky to come to UCLA on a scholarship, and I’ve never forgotten that. The lessons and values I learned while attending UCLA shaped my thinking throughout my business and community life and helped build my business reputation. Giving back to the school is my way of enabling future generations to have the kind of opportunities that UCLA offered me. It is simply doing the right thing.”

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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