Private Equity Investing in Consumer and Health Care

EMS:
Sam, to kick off the conversation, tell us a little about your firm and how you got to where you are today.

SO:Absolutely. So Ouroboros Group is a lower middle market investment firm specializing in consumer and healthcare buyouts. So typically we target companies producing five million in EBITDA and above, and we prefer North American companies but are geographically agnostic. So when I originally started Ouroboros, it's because I saw that private equity typically disrupts other companies, but ironically they don't really disrupt themselves. So it seemed like a really interesting area for disruption and for us to explore. So one area that I saw an arbitrage opportunity in was the deal sourcing component within private equity. So I developed an AI sourcing strategy called Carmen that uses many different variables to determine silhouettes of companies we might want to invest in using both public and private and conventional and unconventional data.
EMS:Very interesting, Sam. So given that, I'd love to hear more details on your outlook for PE.
SO:Yeah, absolutely. It's a really interesting environment right now, and we're actually seeing a large paradigm shift in the industries, especially as CEOs are becoming increasingly more educated on the ways they can exit. And private equity is becoming much more abundant in the market, and it's mainly because everything's getting increasingly more competitive to attract CEOs to your post close strategy, but also finding great alignment for your investment strategy from the beginning. There's been really a lot of significant consolidation, especially within consumer we've seen this within the past couple of decades.

I also really don't think that the rising interest rate issue is going to disappear anytime soon, and it's really likely to remain more of a situation that PE is going to have to deal with, which is going to have to force us to rethink how we are benefiting from our growth strategies and also using less leverage than we're typically used to as private equity shops. Which is one thing that forces the investor to come up with a more organic strategy and a thoughtful post close growth strategy, which is one of the reasons that I started my shop to really have that more organic strategy post close rather than just relying on leverage and debt.
EMS:Absolutely, Sam. And more specifically, what are some of the greatest opportunities you see looking ahead and why?
SO:Yeah, so I'm seeing significant opportunities within healthcare right now, especially. COVID has expedited all of these technologies and practices. Some notable ones are telemedicine that are now becoming really ingrained in our daily routine. Other areas around healthcare IT, patient monitoring and overall patient value care versus the typical fee for service model is beginning to gain a lot of traction within the public markets and trickling down to large cap and middle market private equity from more of an opportunity standpoint.

This is very important because the healthcare system has rapidly shifted, not in investing, but just in healthcare in general, where you have a lot of practitioners and doctors who are starting to see that the system is broken and we really need to put the patient first, and that includes incentivizing their fees so that it keeps patients out of the hospital longer. And now you're starting to see a lot of private equity shops that are capitalizing and working with these strategies rather than the typical fee for service, which I think a lot of LPs are liking because really, everyone's rowing in the same boat that way for LP returns, but also the patient is really being put at the forefront.
EMS:Absolutely. It's definitely a very interesting time in that sector. To shift gears, on the other hand, Sam, what are some of the greatest challenges you face in PE investing?
SO:Yeah, it's a great question. I think one of the greatest challenges is within consumer fashion and retail at the moment. You get a lot of Gen Zers right now that are increasingly spending their money on experiences and more covert luxury, which the older generations are now doing as well. So everyone's coming out of COVID excited to be out and about again. Well, the top 1% are luxury markets such as Prada and LVMH and Chanel. These brands, they're still thriving, but lower to middle market brands are suffering just because people, the majority of the population, I should say, they're allocating their money in other areas, not just the 1% of populations. So a lot of these events that we're going to these days, they're becoming much more casual. Even galas, you're not seeing the same Adorn dresses. You're seeing a more casual, covert type of look, which is really lending itself to the buyers spending less on this and just taking something from their wardrobe that they might have had a couple years ago. It's suddenly not taboo to show up in the same outfit twice in one month.
EMS:No, absolutely, Sam, I'm seeing that too. In my role going to a lot of industry networking events I notice it's definitely become more casual. So, Sam, be remiss if we failed to discuss you as a woman money manager, such an inspiration. Love to hear your thoughts about this and what you're doing to inspire other women to follow your footsteps.
SO:Well, that's too kind of you to say. I really, really appreciate that. It's been certainly a journey over the decades doing this, but I'd be happy to share. How long do we have? I could do a whole podcast on this. But it's been a good and a bad journey, but I've kind of gotten to the point where I've had to see myself as a person, gender aside. And I've also adopted the tough but useful mentality from a marathon and running career of only competing against yourself and not competing against anyone else, which I think has really lended itself to be useful to me in investing and building my business and seeing that there is other competition, but really starting to see it in parallel rather than competition where I have to be better than somebody else. I just think that that's not really productive. Instead, I think women helping other women has been a really big theme for me. And we all kind of band together and bond together and share our networks and our Rolodexes to really bring each other up in the community.

I mentor so many young women. I love mentorship and I really try to encourage these lessons, but also like to add in that it's so important for women to help other women, but also for men to help other women succeed, which I've been really fortunate enough to have regarding the strong male mentorship. I think going from my early 20s up until where I am now, I really couldn't have gotten as far as I did without very strong men who, they have young girls at home and they want to be a great role model for their daughters and I'm very, very grateful to that.

The other thing that I want to say is that so often I see women who they're feeling undercut in many ways, and I always encourage them to understand that you should really know your worth and that no one's going to advocate for you besides you. So to learn this early on is really valuable. It's something that if I had known that earlier, I would've stepped up a little bit earlier and spoke up for myself. And I think that really speaks volumes and kind of shows that you respect yourself, but also you respect your career and the path you're on.
EMS:Absolutely, Sam, that's so important. And that segues nicely into the next question I have for you today about DEI. Obviously being a woman-owned firm, you already incorporate it into your culture, but I'd love to hear what else you're doing at the firm level or investment level with respect to DEI.
SO:I am so glad that you brought that point up. Yes. So among our gender diversity, we sponsor H-1B candidates, which allows us to get some more kind of this absolute top talent in the market, but it also creates a wonderful non-group think environment with many different viewpoints and skillsets, backgrounds, cultures. I think that we speak about eight different languages among our seven-person team at this point, which is really a testament to just the great talent that we found, but also the folks that have taken a chance on us and on me personally to make all of this happen. So it's all become a great reality, which we're happy about.

I'd say that highly valuable, especially when we're in diligence with companies so that we can problem spot issues and not just overlook something because you have that very diverse viewpoint. I think of us as Captain Planet where we all have our different additives and values and there's no toe stepping, there's no competition, and we can turn to each other and know that this person has a better skillset for this particular task and that person owns it. It makes them feel very valuable. So it's very, very important to me to avoid the toe stepping and just really have a really nice flat hierarchy where everyone feels that they can contribute and say whatever comes to their mind to avoid this group thing.
EMS:Absolutely. Sam, we've covered a great amount of ground today and I wanted to see if you had any final thoughts you'd like to share with us.
SO:Yeah, I'd be happy to. So we're currently taking the next phase within our organization and just launched a fundraise for our Fund 1. So we're raising 200 million and we have such a robust pipeline at this point of all of these great proprietary opportunities that we found from our AI yield sourcing strategy, Carmen, that at least a few of those are going to likely be in our Fund 1, which is great. So we're very excited about this.
EMS:Sam, I want to thank you so much for sharing your perspective with our listeners today. And thank you for listening to the EisnerAmper podcast series. Visit eisneramper.com for more information on this and a host of other topics. And join us for our next EisnerAmper podcast when we get down to business.

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