On May 31, 2018, Dwyer Group transitioned our private equity (PE) partnership from The Riverside Company to Harvest Partners. After consulting with Dwyer Group’s leadership team and other advisors, we decided the timing was right for Riverside to return capital to their investors by locating a new PE sponsor. This article provides some additional information on our capital structure and its advantages for our company and brands.
Dwyer Group is capitalized with a combination of PE funds (majority) and debt (minority). Some of the largest businesses you might think of are also capitalized with PE funds. This cycle we go through from time to time is a natural part of our capitalization process. Public companies are capitalized with public funds. Shares in those companies are often purchased in large blocks by institutional investors. There is a constant churn on that capital base with firms moving into and out of the stock. So public company CEOs and CFOs are continually promoting their company and dealing with inquiries. If you are wondering, what constitutes PE money, and how does it work, read on!
Private Equity Partnership Logistics
PE capital consists of an expert firm organizing investors to pool their investments into a targeted fund with a designated purpose. A fund’s purpose could include investments in commodities, real estate or companies, as was the case for Riverside. Once the fund’s purpose is identified, an investment goal and a term (10-year terms are most common) to reach that monetary level is determined. The PE firm must now secure investors’ capital commitments. Those investors are most commonly retirement funds, insurance companies, university and other endowments, banks, and similar types of investors. Once the capital commitments are raised, the PE firm goes to work on investing the capital. In our case, they research and compete to buy the best companies. A fund almost always seeks to reduce its risk exposure by investing in multiple companies. The fund prospectus will indicate the maximum percentage of the fund they may invest into any one asset.
The first few years of the fund are spent deploying capital into those investments. Then they wait for the investment to grow, assisting as a catalyst as appropriate. After sufficient growth, they sell the asset. Eventually, the fund needs to return the capital to the investors. Riverside’s fund, which sponsored Dwyer Group, had a 10-year term. That fund was fully invested, and they were raising the next fund. Given Dwyer Group’s material growth, success and market conditions, it was time for them to return capital to their investors. It was time to select a new PE sponsor.
Dwyer Group’s Future Growth
Over the past three and a half years, Dwyer Group more than doubled in size, so we only considered funds considerably larger than Riverside’s to ensure our continued success. Harvest Partners’ fund size, expertise, culture and experience with franchise companies met our expectations – making this move a mutually-beneficial decision.
PE capital has been a very positive experience for the Dwyer Group. Our franchisees and associates have already benefitted from our ability to grow. We are a bigger and better company than we would have been without access to PE capitalization. Partnering with the right firm will certainly contribute to further enhancements in our systems and ability to reach and exceed our strategic goals and initiatives. With the Dwyer Group’s on-going investment commitment from Harvest Partners, our management team, brand leadership, support systems, franchisees and the on-going enhancement and optimization of Neighborly/Neighbourly, we are confident in our continuing opportunities.