How private equity can help companies grow in changing markets

Lynn Norris:

Welcome to Navigating Beyond the Expected, a podcast from Truist Securities. Private equity firms and other financial sponsors play an important role in how companies raise capital, grow and navigate change today, but the modern market is forcing those investors to think differently about risk, opportunity, and long-term value creation. I'm your host, Lynn Norris, and today we're talking about how private-equity-style investors are adapting to big disruptions like the rise of artificial intelligence, what that means for how they identify and work with portfolio companies and what company leaders need to know about financial sponsors. Joining me is Dan Mayer, Head of Financial Sponsors Group for Truist Securities. Dan, thanks so much for being here.

Dan Mayer:

Thank you for having me.

Lynn Norris:

Dan, before we dive into how sponsors are navigating today's market environment, let's just start with the basics. When we say "financial sponsors," who are we talking about?

Dan Mayer:

Most commonly financial sponsors, and they're also known as private equity firms, are investment firms that provide capital in exchange for majority or minority stakes in a business. They offer strategic guidance, industry and operational expertise, and broader support to foster growth within a business.

Lynn Norris:

A lot of people hear "private equity," and they think money. How much of the relationship is about these other kinds of support?

Dan Mayer:

It's really a lot of it. The stronger sponsors understand the businesses and industries they focus on and where their partners are going to need augmentation and growth. For instance, someone who may be a very successful business operating in the Northwest and is thinking about expanding geographically. A financial sponsor can partner with that business to successfully expand and importantly navigate through some of the pitfalls a founder may or may not have foreseen as they are able to draw upon a great deal of experience and relationships that they have.

Lynn Norris:

A lot of people have noted that transaction activity has slowed in recent years. From your perspective, what's driving that hesitation in the market?

Dan Mayer:

For investors, there's been trepidation around geopolitical uncertainty in multiple parts of the globe, economic conditions in certain sectors and also specifically more recently the questions around AI and how will it ultimately affect a number of industries?

Lynn Norris:

Do you think the hesitation's coming more from buyers trying to avoid risk or from sellers waiting for more certainty before pursuing deals?

Dan Mayer:

It's a unique blend right now. On the seller side, most of them feel good about the assets and businesses they own. They're willing to hold them longer until they feel like the market's really going to avail the proper opportunity to sell the business for proper value. On the buyer's side, they're being a little bit more selective and cautious given the aforementioned issues in the current environment.

Lynn Norris:

When you look at the business world today compared with even a few years ago, what's changed most about how financial sponsors evaluate potential investments?

Dan Mayer:

Evaluation is certainly always evolving and there are various sectors emerging at any given time. Currently, onshoring has been a massive theme for the last few years as we've seen in the rise of tariffs and a few other elements in the economy. Potential risk of AI will be a common theme I'll touch on for better or worse because it's kind of the buzzword that everyone's stuck upon at the moment, but it is a potential risk of how is AI going to affect the business? It's one of the primary questions everyone's asking. Traditional factors such as stability, defensibility remain a focal point currently and more so than what they've been the last few years as people have been a little bit more muted on buying activity.

Lynn Norris:

Are sponsors looking at AI more as an opportunity or is it a disruption risk?

Dan Mayer:

Sponsors are viewing it as both. The capabilities AI can provide and will provide are still evolving, so everyone's trying to figure out where that heads. They're working hard to understand that because even if it's a non-tech related business, how can it prospectively augment or improve that business? Sorting this out is going to take time, and they're trying to figure out what can displace or what can foment change in current business models. Additionally though, there's a lot of opportunity around this. In the most simplistic fashion, a lot of people are hearing about data centers right now, that's a focus for sponsors, but it's also the whole ecosystem around data centers. There's a lot of services, there's energy needs and equipment needs that are all areas of opportunity for people to invest, and we're seeing a flight to capital towards those areas.

Lynn Norris:

So is it fair to say that the shift is toward businesses with more tangible or essential characteristics?

Dan Mayer:

There's been a greater focus there in the near term. I expect that we'll see a renewed focus elsewhere as AI continues to ramp and evolve and we see some broader stability in the economy.

Lynn Norris:

We've been talking about how sponsors are navigating uncertainty and evaluating opportunities today. But once an investment actually happens, the conversation shifts from identifying value to creating it. Dan, when sponsors talk about creating value inside a company, what does that mean in practice?

Dan Mayer:

Sponsors are very focused on growing the value of the businesses they invest in. They work with these businesses over multiple years to recognize operational efficiencies, avenues for strategic growth, both organically and through acquisitions, and broadly augmenting the business market positioning.

Lynn Norris:

This is much broader than simply cutting costs or improving margins, right?

Dan Mayer:

Certainly. Good sponsors are partners. They are here to provide windows into growth opportunities, operational support, expansion strategies, acquisitions. Generally speaking, building a stronger business, not just financial engineering. It allows good businesses to benefit from their expertise and connectivity that they may not have on their own.

Lynn Norris:

Well, not all sponsors operate the same way, of course. What are some of the biggest differences in how firms approach working with portfolio companies?

Dan Mayer:

They do vary. Some are very hands-on operators while others are very light touch and look at, we're going to let our leadership team continue to run this solely. We'll be there for support when needed, but we're not going to be into the day-to-day. It involves their investment velocity, their sector focus, and what's the true growth strategy of the business?

Lynn Norris:

For companies evaluating potential partners, choosing the right sponsor is more than about just valuation, right?

Dan Mayer:

Valuation's certainly important, but cultural fit and strategic alignment is key. The growth goals, understanding what kind of partner you'd want in a sponsor, it's really paramount as you think of this and it's really going to drive how your success plays out over time. If you just solely focus on valuation, which we touched on, you might wind up partnering with someone that's just not a good fit with you, or you haven't been open and honest on the front end of what your desires are as a leadership team of the company, as a retaining equity owner or whatever else. That's sometimes when things get choppy.

Lynn Norris:

One thing I think people may not realize is how much experience sponsors can bring just from working across multiple businesses. How does that broader perspective help companies grow?

Dan Mayer:

You're right. It's the broader insight and just the experience that they have. I mean, you have got a lot of very talented founders of businesses or operators of businesses that they've been so heads down and doing a great job of growing it. Where these sponsors are able to see across a variety of different businesses and sectors and leverage those to provide examples and tangible case studies of here's how this worked, or frankly, here's how it didn't work because, what a good idea it may appear to be or might not be in practice. They are very good at really being able to suss out where can you go, where can you avoid this pitfall that we've seen others come upon, and also just market uncertainty. When you think of the tariffs that are implemented more recently, this is something that I don't think a lot of people had a clear lens on. They've at least seen things like this before. History doesn't repeat, but it rhymes and you can bear the benefit of that.

Lynn Norris:

Right. Exactly. That sounds like it could be especially valuable for founder-led or family-owned businesses.

Dan Mayer:

It certainly can. A number of sponsor-backed businesses were originally family-owned, and you'll have situations where you may have certainly family members that may no longer be as involved in the business. Sometimes it's a good opportunity of clearing up the ownership table, but also it's just a good opportunity of seeing things through a different lens that you may not otherwise. It's seeing other opportunities that may not come to the fore because you might not be connected to some businesses in different parts of the country or globe or otherwise that these sponsors may be.

Lynn Norris:

Sponsors work with a lot of companies, but they also become specialized in particular industries or subsectors. How does that specialization benefit their partner company's growth?

Dan Mayer:

Sponsors come in a lot of different forms. Some can be more generalist. Most of the ones we work with though have defined teams that have built a specialization on specific industries, which allows them to build up that expertise and relationship and operating knowledge, which in turn helps better identify opportunities and understand the risks a business could undertake.

Lynn Norris:

How much of that advantage comes from pattern recognition, from seeing similar challenges and opportunities across multiple companies?

Dan Mayer:

It is valuable. Sponsors work across a broader portfolio of businesses. They own things across different industries. What that gives them visibility into are operating trends, market conditions and other things that the broader markets may not see until quarterly reporting comes to the fore. They usually have real-time insights of where things may be moving from consumer demand to cost of aggregates to everything else in between that can be really materially beneficial to a client.

Lynn Norris:

Yeah. I can see the real value in that. Let's look at these questions of growth and value creation from the perspective of a company leader who senses an opportunity in what we've been talking about but has to decide whether a sponsor partnership would make sense for their particular company. How does the company know when partnering with a sponsor should be seriously considered as a growth or capital option?

Dan Mayer:

It can make sense when a company reaches a stage where growth ambitions, expansion opportunities, succession plans, or capital needs begin to outpace what they can comfortably manage on a standalone basis.

Lynn Norris:

Okay. It's not necessarily about wanting to exit a business. It can be about preparing for the next stage of growth?

Dan Mayer:

Certainly. There are many owners that may be reaching a part where they're just ready for an exit and sponsors can certainly be the solve for that. But quite often founders or leadership teams continue on to drive the business and use sponsor partnerships to accelerate growth, expand strategically, or simply strengthen the business over the longer term.

Lynn Norris:

If a company thinks it may eventually pursue a sponsor partnership, what are the most important things its leadership team should do in advance to prepare?

Dan Mayer:

It's important to have good financial reporting, so make sure that that's cleaned up well. Operational discipline. How are you tracking key metrics and so forth so you can show strategic clarity and really share a lot that puts your business in the best light? But also understanding the company's growth story and its current market position. What separates you in the markets you serve? What's your next step of growth? If you could pick an acquisition, what would you do? These are just food for thought things. Think of it from their side of the table. They're looking at good businesses. They're having a conversation with you because they admire what you built and they think it's worthwhile, but you know your business better than anybody else, and they're going to ask a lot of questions to see if it's the best fit for them as well as the best fit for you.

Lynn Norris:

It sounds like communication skills. Maybe you'd even say presentation or performance skills can make a real difference.

Dan Mayer:

Yeah. It's important. I think they want to see people being authentic, but they also want people that can tell a compelling story, right? If you're not excited about your business, who is?

Lynn Norris:

Sure. But storytelling isn't a natural skill for everyone, even a CEO.

Dan Mayer:

Well, we often might be doing some coaching with him or her around, "Hey, here's what we need to make sure you're doing in front of people. Here's how we want you to get more excited, less excited about certain things," so it might be more on the coaching side from our teams.

Lynn Norris:

Even once you've got the delivery down, you still need a good consistent message. I know you've watched a lot of company pitches over the years. Where have you seen company leaders stumble?

Dan Mayer:

Yeah. I've seen any and all in between, right? Everyone in these positions are usually pretty talented people from various backgrounds who are leading these businesses. Some are better at conveying a story than others. Some that are good at conveying a story will then get caught later because they said, "Well, we grew 15% in Q1 of last year," and then they'll get the numbers and be like, "You grew 8%. What? Why are you telling us different numbers?" They'll kind of step in something later.

Lynn Norris:

How would you know if a pitch is in trouble?

Dan Mayer:

That’s where you get someone who conveys a higher ego and lack of willingness to work with others who's also asking for outside capital because that's tough. Sponsors are trained at... They're there to recognize value, and they really do want to partner with these firms. But if you have a lack of willingness of even listening to their opinion, that's going to be a massive red flag right away because they're not there to run your business for you necessarily, but they need to feel like they're there to add value and that they're going to be part of the story, not just watching the movie.

Lynn Norris:

Is there something about this process that surprises company leaders who haven't been through it before? Something that maybe takes some experience to really understand?

Dan Mayer:

Sometimes it's not understanding the amount of rigor that the process can entail. If you think of just some of that tracking on a week-by-week, quarter-by-quarter basis, whether it's on the sales side, whether it's working capital needs, whether it's all the things of that nature. It's also making sure you've got a good strategic and cultural fit. These are areas where Truist often is partnering with management teams, with founders to make sure that we're helping you ask the right questions and present yourself in the best light when opportunities like this come.

Lynn Norris:

Well, the vetting process is a two-way street. When companies evaluate potential sponsors, what separates a good partnership from a bad one?

Dan Mayer:

Successful partnerships depend on alignment around strategy, culture, growth expectation. Also, communication style. What's your long-term objective in this?

Lynn Norris:

What kind of thought needs to go into how the management team will adapt and function under the partnership?

Dan Mayer:

I think it's really important that the teams find a way to be on the same page from the start. It's good to have discussions with other firms that have had ownership stakes by these sponsors. They can usually give you a true vision of, "Hey, here's how it was day-to-day. Here's what happened when we hit a challenge. Here's what happened when we did acquisitions. Here's how we augmented our team through time." It's good to have a clear view on what expectations are from a leadership and team performance from the get go.

Lynn Norris:

Well, these decisions can obviously become very complex, but what role can an outside advisor play in helping companies navigate these partnership and capital decisions?

Dan Mayer:

They're really critical. Where Truist can help is we can help evaluate multiple paths forward. While my team covers sponsors, we're agnostic to what the best solution is for the client. In that way, it's about assessing potential partners and structure needs for the client over the long term.

Lynn Norris:

I imagine that's especially valuable because there's rarely just one path available to a company at this stage.

Dan Mayer:

Yeah. Companies may consider debt financing, strategic partnerships, sponsor investments, or other alternatives. There's a lot of trade-offs, and we can help evaluate how that fits and how that works. Not just for where you want to be today, but where you want to be over the longer term. It's also a good idea to get introduced to some of these sponsors early. Some of the best relationships form when someone's well in advance of a process, not considering doing anything. You still don't know when a strategic opportunity may arise or why it might be worthwhile to just have a conversation and learn. These are often coffee chats or dinners or lunch. Very informal, but gives you a good long-term feel for somebody, and it opens up the door for other connectivity, which is generally very helpful.

Lynn Norris:

Yeah. That definitely sounds valuable. Dan, this has been a really insightful conversation about how financial sponsors are thinking about growth, risk, and partnerships today and also what companies need to understand as they consider their own options. Thanks again for joining us.

Dan Mayer:

Appreciate the time. Thanks for having me.

Lynn Norris:

But before I let you go, I have just a few more questions for you so we can get to know you a little better. I want you to answer them in rapid fire style. Ready?

Dan Mayer:

Sure.

Lynn Norris:

What's the latest in the day you're going to have a cup of coffee?

Dan Mayer:

Probably 4:30. Usually one in the morning, one in the afternoon. For some people, it really affects their sleep patterns. I guess I'm jealous of them, but I don't really operate on too much caffeine where it's not going to change my sleep pattern one way or the other.

Lynn Norris:

Oh, right. I was like that too. I could drink caffeine and then fall asleep two minutes later.

Dan Mayer:

Yeah. Yeah.

Lynn Norris:

Yeah. All right. What app gets used most on your phone?

Dan Mayer:

That's a good question. Instagram is good for monitoring the kids and knowing what they're posting online or at least what they're posting through an official account. I find X very interesting just from a flow of news information over the course of the day and good way to get snapshot of what's going on in the world briefly between meetings and otherwise.

Lynn Norris:

Okay. What do you still sometimes write down on paper?

Dan Mayer:

Notes when I'm in a hotel room and don't have my laptop or iPad up.

Lynn Norris:

Interesting.

Dan Mayer:

Otherwise, very rarely and I have terrible penmanship, so it's a big relief to have things saved electronically and not parsing through notebooks as I did when I started my career and try and understand what I wrote.

Lynn Norris:

Absolutely. I love that hotel rooms always have paper.

Dan Mayer:

Yeah. Exactly.

Lynn Norris:

It's nice. Okay. One more, and you can take just a little more time with this one if you'd like. What's one way you try to go beyond the expected in work or in life?

Dan Mayer:

I think in work we truly are focused on building partnerships, and that's not just between my sponsor clients and prospective companies, but it's with our sponsors over a longer term, it's our banking partners with these clients over a longer term. Because while each potential transaction is very important to us, it's these long-term mutually beneficial relationships that are going to lead to a lot more things that we can all be doing together. The world is a vast place, but also a small place in many regards, and the number of people you'll see at one stop that you may see again down the road doing something different. It matters what the outcome was, how people were treated rightly or wrongly. They have memories and you have memories too, so it's really having that partnership mentality that I think drives our success.

Lynn Norris:

Yeah. That's really important. I really like that.

Dan Mayer:

Thank you.

Lynn Norris:

All right. Well, that was excellent, Dan. Thank you for being here on Navigating Beyond the Expected. I hope we'll get to have you back soon.

Dan Mayer:

Appreciate it.

Lynn Norris:

Listeners, thanks for joining us on Navigating Beyond the Expected. Each month we bring you new conversations with Truist Securities experts on the issues shaping corporate and investment banking. Subscribe today so you never miss an episode, and check out more Beyond the Expected insights, videos, and articles at truist.com/beyond. You can also subscribe to I've Been Meaning To Do That, the podcast from Truist Wealth at truist.com/dothat. I'm Lynn Norris, and we'll see you next time.

Truist Securities is the full service corporate and investment banking arm of Truist Financial Corporation. With a rich history extending back more than 125 years, Truist Securities offers a robust capital markets and investment banking platform that includes a comprehensive array of strategic advisory, mergers and acquisitions and capital markets capabilities for corporate and institutional clients, including sales, trading, and research services in both fixed income and equity. The firm also provides corporate finance, asset finance, risk management, liquidity, and treasury management solutions to meet clients' full spectrum of financial needs.

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