Dealmaking in High-Potential Service Businesses

Kashyap Shah: 

Thank you for having me, Elana. 

Elana Margulies-Snyderman: 

Absolutely. So, to kick off the conversation, tell us about PPC and how you got to where you are today. 

Kashyap Shah: 

Sure. PPC or as it stands for Public Pension Capital is an investment firm founded by Perry Golkin and Mike Tokarz having spent decades at KKR. Today, the firm manages over $1.5 billion in assets focusing on lower middle market investments across three key industry verticals, business and financial services, which is an area that I focus on, industrial services, and health care. We typically invest between $30 to $40 million on the lower end and up to $140 to $150 million in both minority and controlled positions. The firm recently completed our 10th Anniversary, and the funds have produced attractive returns across vintage years. One of our key differentiators is our open-ended fund structure, which allows us to raise capital annually, specifically on March 31st every year. Our existing investors often reinvest, and new investors have the opportunity to come in at that time. Today, our LP base includes pension plans, endowments, and insurance companies. The fund's corporate governance and economic structure are unique featuring a board of investors that plays a role in setting the annual management fee, carried infrastructure which is advantageous to the LP, and the flexibility for any investor to unilaterally reduce its unfunded and unreserved capital commitments annually after an initial commitment period. As for my background, I've been working with the founders of PPC for over a decade. I started as a chartered accountant before transitioning into investment banking which led me to my private equity investment career. 

Elana Margulies-Snyderman: 

Kashyap, loved hearing your journey. As a follow-up, could you talk a little about the investments you've made during your career, including Viteos, Aduro and more? 

Kashyap Shah: 

Sure. My investment focus lies at the intersection of technology, financial services, and outsourcing. In 2017, we invested in Viteos Fund Services, a leading provider of middle office and shadow accounting services for some of the world's most complex alternative asset managers. We had a very successful partnership with the management team. That business is now a part of CSC based out of Wilmington, Delaware following its acquisition of the Intertrust Group. In 2020, we partnered with Braughm Ricke at Aduro Advisors, a fund administrator specializing in venture capital. Braughm and his team have built a strong platform supporting managers in the startup ecosystem. Last year we brought in Vitruvian Partners as an investor alongside us and the management team to further scale the business. Most recently, we partnered with Gurvinder Singh at Indus Valley Partners, or IVP, a provider of technology and solutions for private credit and hedge funds. We are IVP's first institutional partners and are excited to support the company's growth, expanding across asset classes, broadening service offerings, and investing in modern technologies. 

Elana Margulies-Snyderman: 

Kashyap, as a follow-up, what are some of the underlying themes that motivated those investments you talked about? 

Kashyap Shah: 

At the core of all of these investments is technology and solutions catering to the large and growing alternatives market. Early on, we recognized this trend and focused on service providers well positioned to succeed in this space. The businesses that we've invested have demonstrated strong and resilient customer bases, driving high retention KPIs, increased technology adoption, and the trend towards continuous outsourcing of middle and back-office functions. Additionally, expanding valuation multiples and a strong industry push towards consolidation through inorganic growth opportunities has driven some of our focus in this space. A common thread across all of these investments has been the presence of exceptionally strong management teams, partners we are incredibly proud to have worked with. 

Elana Margulies-Snyderman: 

Kashyap, on the other hand, what are some of the greatest challenges you faced when completing those transactions you discussed? 

Kashyap Shah: 

Well, without going into the specifics, in general, diligence around operations and technology has been a key focus area. Are the solutions and offerings positioned to continue to win in the future? Are the disruptive technologies that are out there going to help the businesses that we have been investing in? Are the advancements in enterprise data management, ML, AI, LLM tools, areas which our companies could benefit from? That has been one of our key areas. I would say outside of that, complex national, international transaction structuring. In a few cases, we in fact have needed operational restructuring of the businesses before we could invest. The cross-border nature of some of the operations, the critical customer behavioral patterns or concentration issues, ability to lever up some of these businesses who were in fact first-time issuers of credit are areas that we've spent a lot of time with. I think another area to mention is the management team incentive structure, which has been a very important area and has helped us drive results with some of these investments. 

Elana Margulies-Snyderman: 

Kashyap, AI and automation have been hot topics for the industry and would love to hear your thoughts on how they're impacting the space and how they're expected to over the next five, ten years plus. 

Kashyap Shah: 

AI and automation will have a profound impact on private equity over the next five to ten years, reshaping how firms like ours source deals, conduct due diligence, manage portfolios, and engage with investors. It is in fact an area where we are most excited and spending a lot of time unpacking and ideating the winners of tomorrow. For example, when it comes to deal sourcing and origination, AI-driven screening, which helps to scan vast amounts of structured and unstructured data to identify investment targets is something that we are focusing on, bringing in predictive analytics to help forecast industry trends using automated outreach functionalities within AI or automated financial analysis where AI can be rapidly deployed to analyze financial data, EBITDA trends, working capital efficiencies, significantly reducing the manual effort in some of these functions. Another area we have been thinking about is the use of NLP and LLM tools to review documents, contracts, compliance reports. A lot of these technologies can process information much, much faster than human analysts can do. I think private equity firms that effectively integrate AI will gain a competitive edge in deal sourcing, due diligence, portfolio management, and value creation. 

Elana Margulies-Snyderman: 

Kashyap, I wanted to thank you so much for sharing your perspective with our listeners. 

Kashyap Shah: 

Thank you very much, Elana, for having me. 

Elana Margulies-Snyderman: 

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. 

 _{Transcribed by Rev.com}