The interview below is part of a series from McGuireWoods that features interviews with impressive independent sponsors as part of our ongoing commitment to the independent sponsor community. To recommend an independent sponsor for a future interview, email Jon Finger at firstname.lastname@example.org.
Q: Why did you become an independent sponsor?
Casey Rentch: After a 20-year career in investment banking, I decided it was time for a change. Throughout my banking career, my favorite assignments involved advising family-owned companies through ownership transition. I also spent my entire career covering clients in a narrow segment of the industrial landscape: building products and materials.
Longtime colleague Ben Hughes and I developed a private equity strategy that would play to our strengths while focusing on the types of companies and owners with whom we enjoyed working the most: family/entrepreneur-owned building products businesses in the lower middle market. We believe our niche industry specialization and vast network of building products industry experts/advisers give us a unique advantage when speaking to business owners looking for a more strategic capital partner. Our strategy, combined with a preference for investment flexibility, heavily influenced our independent sponsor structure. We like the idea that each investment stands on its own merit, is capitalized independently and provides us flexibility in choosing specific capital partners that are right for each transaction.
Q: How long have you been operating as an independent sponsor, and how long did it take you to close your first deal?
CR: Blue Ridge Construction Capital formally launched in May 2022. Prior to launch, we spent a handful of months working through the steps required to "stand up" the firm. This included completing formation documentation, launching a website, finalizing marketing documents, hiring two former colleagues to round out our execution team and approaching advisory board candidates. It also included getting the word out to sources of deal flow, like industry and banking networks, and capital, such as family offices, funds of funds and high-net-worth contacts.
We completed our first transaction in August 2022, acquiring and merging two family-owned construction sand suppliers renamed Matthews-Edge Sand. We completed our second transaction in November 2022, acquiring a founder-owned manufacturer of concrete pavers called Artistic Paver Manufacturing. Both transactions were proprietary opportunities and met all of our investment criteria: great companies operating in attractive building products industries, strong industry expertise available in our advisory board and industry network, obvious organic and inorganic growth opportunities and clear strategic exit options.
When we launched in May, we set out with a goal of completing one platform acquisition in the first 12 months. Needless to say, we are thrilled to have completed two transactions in 2022 and believe the momentum validates our firm strategy.
Q: What are some of the most impactful reasons you think the independent sponsor model has grown so robustly, and what future changes do you envision?
CR: The independent sponsor model has grown quickly because the infrastructure to facilitate deal execution is largely in place and the transaction structure is broadly accepted by institutional capital providers and transaction advisers. When we started to develop our network of preferred capital providers and transaction advisers, I was shocked by the number of organizations that are set up specifically to fund and work with independent sponsors. There is broad acknowledgment from large institutional and family office investors that partnering with independent sponsors, on a deal-by-deal basis, is a really attractive way to gain direct-investment exposure.
Q: What are the most common misperceptions about the independent sponsor model?
CR: The biggest misperception we face is the idea that our transaction capital is uncertain. By definition, as an independent sponsor, Blue Ridge does not have a fund of equity from which to pull. However, we approach our capital partnerships in a way that provides as much "capital certainty" as possible. For example, we will not sign a letter of intent unless we have vetted the transaction with our equity and debt capital partners and have a high confidence in our ability to fund the transaction. Our resources, both time and money, are on the line for each transaction. Unless we can see a clear path to completing diligence and funding a transaction, we will not pursue it. We believe this approach generally provides business owners comfort in that our incentives to pursue and close a transaction are entirely aligned.
Q: Recognizing every deal is different, what are some of the most important considerations for you when choosing a capital partner for a deal?
CR: One of the primary benefits of the independent sponsor model is that you get to select capital partners for each transaction. At Blue Ridge, we have been very intentional to identify and vet a group of equity capital partners that are aligned with our investment strategy and acquisition criteria. This approach — we hope — allows our capital-raising process to be more efficient when it's time to close an acquisition.
We created Blue Ridge with the idea that every aspect of the firm would leverage our building products experience and expertise. We use the same philosophy with our capital partners. We prioritize partners that bring operational or strategic expertise in building products. We also like to partner with strategic investors in our acquisitions, as we did with the Artistic Paver transaction.
Lastly, for each transaction, we try to allocate about 10% of the equity raise to our industry network. Generally, these investors are building products industry executives who understand the sector and believe in our approach. Including industry investors helps to validate the transaction with other constituents, such as lenders and other equity providers. In many instances, these investors bring commercial or strategic advantages to the acquisition.
About Casey Rentch
Casey Rentch is a managing partner and co-founder of Blue Ridge Construction Capital. Prior to Blue Ridge, Rentch concluded his 17-year investment banking career as a managing director at Goldman Sachs, where he was jointly responsible for the firm's building products and homebuilding investment banking practice. Rentch started his career in investment banking at Wells Fargo Securities. He earned a BA in business from West Virginia University in 1999 and an MBA from the Robert H. Smith School of Business, University of Maryland, in 2005.