Meet the Manager
Promoting growth, but staying small.
PrivateEquityCentral.net
January 4, 2008

Mark Jennings is a managing partner at Generation Partners, a firm that specializes in the areas of healthcare services and technology, media and communications, and business and information services. Generation is based in Greenwich, Conn. with an office in San Francisco. He talked to PrivateEquityCentral.net about why it’s so nice to still be doing small to midsize deals after 20 years.

PrivateEquityCentral.net( PEC): Tell us a little about Generation Partners.

Mark Jennings (MJ): Our firm is really a growth equity and a growth buyout firm. We focus on certain industry subsectors and do significant research on those sectors. Then we’ll hunt down competitors and make an investment behind what we believe is the best team. Sometimes that actually results in a buyout and sometimes it results in just a growth equity investment where we have a minority position. The most important thing to us isn’t the type of deal. It’s the actual thesis and the team. As a result of that, our philosophy and our returns over time have been primarily driven by organic business growth as opposed to financial leverage.

In [our latest fund], almost all our returns have come from companies that have either no leverage or very modest leverage. That’s pretty unique, I think. Obviously now we’re in a down market credit cycle and firms like ours tend to weather those times pretty well.

I’ve been in the business for 20 years now, and we’ve compounded our capital at about 50% for 20 years. Over time we’ve done deals that have had leverage and of course we’ve done without as well, but we’ve got a philosophy that the safest and most consistent way to make equity returns is to really concentrate on the core business growth of the portfolio.

PEC: What sets Generation Partners apart from other firms that have been around for the same amount of time?

MJ: We stay in the small to midsize part of the market. To us that means companies that are generally under $100 million in revenue and under $100 million in enterprise value, and we specialize in helping entrepreneurs scale their business through the $100 million mark and beyond. It’s all about growth. We usually invest $10 million to $30 million in equity per transaction, which is a great space to be in because a lot of the people we used to compete with, that are really successful firms, have continually raised larger funds and they’re now pretty nonexistent in that size range. A lot of them have gone on to write $50 million to $100 million equity checks, so we just don’t see them anymore when a company is looking for $15 million or $20 million, which has been great for us. It opens up a real niche, because typically the firms that write checks in that size range are new, and we’re a group of guys that are 20-year veterans that just stayed focused on the smaller companies because we fell in love with that stage of growth – the creativity and the fun that’s involved when you help a company get through that stage.

PEC: What interesting deals are you involved in now in healthcare?

MJ: The healthcare services sector is an area that we’ve got quite a bit of focus on now. For example, a great company that really gives you an idea of what we do is VirtualRadiologic, which just went public. Goldman Sachs and Merrill Lynch took it public in November. In 2003 we targeted the diagnostic imaging space, and within that space targeted the subsector of teleradiology. We went forward and met many different competitors and decided that VRC is the company that we really wanted to back. We made an investment in April 2005 when revenues were approximately $12 million. We really set ourselves up in that company as the firm of choice because of our prior knowledge of the sector. We knew our fund specializes in exactly their stage of growth and all the things that they needed to scale their business up to and through the $100 million mark are what we built Generation to be able to do. That goes from all the different functions within finance and helping companies professionalize that area, gets into helping them build and recruit a great management team, it gets into all the different things we do with technology and we have an up front assessment process that we do. We built something within Generation that we call the Generation Accelerator, and it’s a process of resources that we bring to bear on all of our companies, and that’s something that I think resulted in VRC being attracted to us to be their partner. So we bought a minority position, and the company has grown since then.