By: Scott S. Johnson, CEO and Founder SJ Partners LLC, Member and Board Member ACG New York
I have had the honor of teaching private equity at my alma mater, Columbia Business School. And, if you’ve heard that in having to teach material you learn if you really understand it, I would fully agree!
As I prepared my class, I reflected on how to provide an overview of the private equity industry, I certainly presented data on its growth and fundamental mechanics. My mind then led me to Michael Porter’s seminal business book of the 1980s, Competitive Strategy, which then inspired my favorite slide of the class. It’s a copy of the title page of his book and the slide is entitled “If our portfolio companies need it, we are not immune either.”
My point is that we as private equity investors must have sustainable competitive advantages. Many of us really do and frankly some of those that don’t just won’t make it in the long term.
What can such sustainable competitive advantages be? Certainly, some of them can be scale. There are firms with such scale and ability to close transactions judiciously that they can be very competitive buyers.
What about other advantages that smaller firms can realize? Certainly, many of us have industry or other specializations.
At our firm, we focus on the consumer and services industries and have an outstanding set of operating partners who we can fortunately call partners. Our operating partners are involved in portfolio company operations, driving add-on acquisition strategies, and sourcing transactions which is one of the main reasons why two thirds of our platforms have been proprietary. Related to that we proudly excel at growth by acquisition, having grown an exited portfolio company twelve-fold driven by fourteen add-on acquisitions.
Other firms may excel in sourcing or execution in their given domains. I’ve always been impressed by my peers who execute turnarounds and their ability to manage that incredibly arcane distressed transactional universe and then deftly manage change through challenging times.
Yet others have developed new specialties. I’ve run into firms that leverage an e-commerce expertise to help portfolio companies build revenue where it’s growing – online! Or, there are those that specialize in China who can invest there or help US based companies manage the opportunities and unique challenges of doing business there.
At the end of the day, know your competitive advantages. And, as teaching forces you to intelligently communicate to be effective, concise and “elevator pitch” communication imposes similar discipline. So, when you can state your competitive advantage in “elevator pitch” form you should know you’re ready to face the world with your sustainable competitive advantage!
Scott Johnson biography
Scott Johnson is the founder and CEO of middle market private equity group SJ Partners, LLC (“SJP”). Scott was named the 2015 M&A Atlas Award Dealmaker of the Year and SJP won a 2015 ACG NY Champions firm of the year award. SJP uses an operating partner focus to grow middle market consumer and services companies. SJP has also been successful at growth by acquisition strategies. Its portfolio company Spectrio grew more than twelvefold under SJP’s ownership, driven by fourteen add-on acquisitions, before being successfully exited to the Riverside Company. This transaction won North American Deal of the Year at the 2015 M&A Atlas Awards.
Scott previously was a securities analyst at Salomon Smith Barney and Merrill Lynch (Merrill team rated #2 on Wall Street, according to Institutional Investor). Scott complements his financial orientation with operating experience, having served as CFO of an in store advertising company. Scott has taught as an Adjunct Professor at Columbia Business School. He also received his BA, MBA, and MIA (Masters of International Affairs) from Columbia. Scott is a board member of the Association for Corporate Growth’s New York chapter and previously chaired its education committee. Scott is also a member of the Young Presidents Organization (YPO) and is on the board of its New York City chapter. Scott is an active, instrument and commercially licensed pilot.
Scott Johnson Photo