Andrew Cohan is the Founder and Partner at Halmos Capital, a boutique private equity firm based in Miami. Halmos specializes in investing in family-and founder-owned businesses with $5 – 30 million of EBITDA. Halmos targets a variety of industries including industrial services, business services, and building services. What sets Halmos apart from its peers is the partners’ experience both investing at large well-known firms, such as Goldman Sachs, as well as boots on the ground experience operating the types of businesses they acquire.
In this Q&A, Andrew shares insights into Halmos Capital’s investment philosophy, the firm’s approach to value creation, and their unique approach to working with family-and founder-owned businesses.
Can you provide an overview of Halmos Capital and its investment focus?
Halmos is a lower-middle-market private equity firm focused solely on buying from founders, families, and operators of businesses. We aim to primarily drive returns by collaboratively partnering with management after the acquisition to add value.
What makes Halmos unique?
What sets us apart from many private equity funds is our combination of institutional investing experience and hands-on operational leadership. Our team has worked at leading financial firms such as Goldman Sachs and Magnetar, but we’ve also been in the trenches managing the types of companies we invest in. For example, from 2018 to 2020, I relocated to Oklahoma to serve as CEO of Energy Water Services, a Halmos portfolio company.
Experience like this gives us an understanding of what small and mid-sized businesses go through, both in regards to challenges and opportunities. Ultimately, it makes us a better partner to anyone who sells a company and partners with us both from our ability to help drive value as well as our ability to empathize with what they are experiencing day to day. We believe most investors in our segment of the market would benefit from spending substantial time in the operator’s seat for perspective.
What unique opportunities and challenges arise when investing in family-owned businesses?
It varies from company to company, but broadly speaking, we help management execute on initiatives they know will add value but haven’t been able to prioritize yet due to limited bandwidth, expertise, or capital. Some examples include growth through M&A, greenfield expansions, product mix shift, enhancing sales and marketing, and professionalization of the management team particularly around finance and financial reporting. This really can take almost any form, and we learn a lot through discussions with management teams during diligence, with both sides bringing ideas to the table and working through what could be done over the next few years together. One challenge we often encounter is the need to be more creative in deal structuring and diligence versus what one would do when buying an institutionally-owned company. Founders and families often have unique personal needs that we try to accommodate thoughtfully. For example, a founder who is running their business today may want to retire over the course of the investment, and in that case we would have a thoughtful discussion prior to closing to work through a transition plan together. Additionally, in diligence often the information is not as perfect as it would be if there were institutional ownership, but we are accustomed to rolling our sleeves up and working through these limitations. Ultimately, the theme is that there is a need to remain flexible and thoughtful throughout the investment process.
Can you share more about your experience as CEO for Energy Water Services and how that influenced your approach to private equity?
This opportunity came about organically—the company needed a professional to step in, but it was difficult to find a qualified executive with relevant experience who was willing to relocate to Oklahoma. I also saw value in gaining operating experience myself, so taking on the role made sense on several fronts. It was an invaluable experience in that we operated a trucking company, which presents all sorts of challenges from logistics to HR. While we acquired several industrial waste facilities, we also ended up building a fifth one. This provided valuable experience with construction management and greenfielding. We also built a de novo midstream company to connect our facilities directly to our customers via a pipeline and reduce reliance on trucks to move water, which was part of our original investment thesis. Almost immediately after the pipeline was completed and we sold off our trucking division, COVID hit and drastically reduced our market overnight. As a result, we gained experience quickly shifting operations to manage through a macro shock. We’ve remained cash flow positive every year, including in 2020, and still generate annual income for our investors. The main take-away from the experience was simply a true visceral understanding of what management feels and thinks as they work through challenges and uncertainty day to day in a dynamic operating environment. It’s hard to fully understand what that feels like without sitting in the seat, particularly during times of intense growth and market downturns. We were fortunate enough to experience both in a short period of time. We also had an experienced and level-headed board, which walked the fine line between giving us the leeway and flexibility we needed to operate effectively, while also challenging us when we needed it. It’s very helpful to have experienced that from the vantage point of company management so that we can be more effective board members and partners for the people we invest in.
What advice would you give to entrepreneurs and business owners considering selling to or partnering with private equity?
First, make sure you engage experienced advisors, both financial and legal, to help you navigate the process. This will help ensure you are receiving fair terms and the deal is structured thoughtfully. And beyond protecting you, your advisors can help work through issues that arise that might otherwise impede a good deal from closing. Combining thoughtful and constructive advisors with a like-minded private equity buyer will help smooth out the process. When it comes to selecting a private equity firm, it is important to first start with what your ultimate goal is. For example, if you simply want the highest price and do not want any involvement or influence on your company going forward, this becomes less relevant and you can simply let your banker and lawyers run an auction process. Generally speaking, we find that founders and families want to remain involved with the business in some capacity going forward, and generally want to retain a stake and benefit from the value creation that is slated to happen over the coming years with private equity. In that case, this is a partnership and it is important to take your time and get to know prospective buyers. Treat this like any other major partnership in your life. Meet face to face and see if you have chemistry and could envision yourself working together. Notice the questions they ask about your business. Do they have an understanding of how your business works and the humility to learn from you? Do you feel like you could learn from them? Partnerships work best when both sides have respect for what the other brings to the table and are able to navigate the challenges and opportunities that come over the next few years. There also of course needs to be an alignment of goals, operating philosophy, and business principles. Time spent in person getting to know each other and speaking with others they have worked with is paramount.
Who is Halmos a good fit for?
Our sweet spot is for people selling their company where they want to retain an equity stake and stay involved in some capacity, either as an executive or advisor, and where the partner they choose matters. Given the retained equity ownership they are incentivized for the investment to succeed, just like we are. We also tend to do well with people who have experienced ups and downs in business over the years, and who can work with us to craft a plan for value creation going into the closing but who understand that the next few years will certainly bring challenges and opportunities and we will need to work together to adjust as the world and facts on the ground change.
What would you say is your “secret to success?”
Being a good partner from start to finish. This really is a people business, and we view our “customers” as both our investors as well as the people we purchase from and partner with. We understand that selling a business is a major decision—often a once-in-a-lifetime event—and we approach that process with respect, transparency, and a constructive mindset. We do what we say we’re going to do. We aim to pay fair prices, and then focus on driving returns for our investors and partners through hard work over the holding period.
