Independent Sponsor Spotlight: Rob Bauer of Bassett Creek Capital

May 26, 2021

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 [email protected].

Rob BauerQ: Why did you decide to become an independent sponsor?

Rob Bauer: It all started with the concept of partnership. I wanted to partner with companies, entrepreneurs, business owners, management teams, executives and industry experts to take companies to the next level. The Bassett Creek approach to partnership is centered around a culture of teaching and learning from one another to create an environment where a rising tide lifts all boats.

I view private equity as: (1) investing and (2) business ownership. We spend a lot of time developing industry-focused investment theses, building business plans and creating corporate infrastructures so our partners can scale. This approach allows Bassett Creek to be the most helpful partner to our portfolio companies.

I chose the independent sponsor route because the reality is, the above takes a lot of time and effort. The Bassett Creek approach is not possible in a traditional private equity fund setting, and I wanted to be different.

Q: How long have you been operating as an independent sponsor, and how long did it take you to close your first deal?

RB: I first became an independent sponsor in 2016 and closed my first deal about 18 months later, in April 2018.

Since the first closing, Bassett Creek Services has completed four acquisitions and become a leading restoration industry platform with 16 offices across the country. We started building the corporate infrastructure right away and named Daniel O’Brien, a legend in the restoration industry, as CEO in 2019. Dan and I have partnered to develop the capabilities, team, mission, role and overall purpose of the company’s corporate platform, which has been essential to our growth.

Q: What are some of the most impactful reasons you think the independent sponsor model has grown so robustly?

RB: Independent sponsors are really entrepreneurs. We take the risk in terms of investing our own capital, going without a paycheck and spending our time pursuing acquisitions as well as developing and executing operational business plans. I think it’s a natural part in the evolution of the private equity asset class for professionals in the industry to take their expertise and apply their ideas to a new investment strategy, to blaze their own path.

Private equity professionals have realized you can spend more time being helpful to portfolio companies because independent sponsors typically have fewer portfolio companies than traditional private equity firms.

Q: What changes for the independent sponsor model do you envision in the future?

RB: You will see independent sponsors partnering with other independent sponsors to work on deals together. You could call these “club independent sponsor deals.” There are a lot of high-quality independent sponsors in our community, and I see a lot of synergies among the various independent sponsors who are closing deals. It makes sense for independent sponsors, with their own unique areas of expertise, to partner with other independent sponsors who have a complementary, but different, expertise.

I also think the number of independent sponsors will increase over time as the model becomes more accepted. For example, I think you will see more personnel leave traditional private equity to become independent sponsors because of the advantages of the business model.

Q: What are the most common misperceptions about the independent sponsor model?

RB: The biggest misconception is independent sponsors don’t have money and are glorified brokers. Bassett Creek Capital is constantly discussing investment ideas with our capital partners, and the independent sponsor model allows us to select the ideal partner for an investment. We are not married to one source of capital. We can be flexible. This mentality and approach give independent sponsors an advantage over traditional private equity firms.

Another misconception is the independent sponsor model is new. It’s been around for as long as private equity has been around. It’s just now there’s a name for the model, and it’s an asset class within private equity.

I began my career at a traditional private equity firm that originally began as a firm doing deals on a “pre-fund, deal-by-deal basis” 30 years ago. Today, this would be called the independent sponsor model.

Q: Recognizing every deal is different, what are some of the most important considerations for you when choosing a capital partner for a deal?

RB: Partnership. Is there alignment between the independent sponsor’s vision for the company and the vision of the capital provider? Capital providers are more than money. They are partners. The question I always ask is, “What can the capital provider bring to the table other than money?” That can be resources, evaluating talent or strategic rationale, for example.

You should understand a capital partner’s track record with independent sponsors. If they haven’t done an independent sponsor deal, ask them why. It comes down to whether the capital provider will be a good partner for the vision and backing of Bassett Creek Capital. Only do a deal with someone you view as a partner and accept nothing less. You can negotiate on economics, but don’t negotiate your values and what’s truly important in a partnership. You should have a binary “yes” or “no” mentality. Don’t do a deal in the grey area.

Q: What is an accomplishment you’re particularly proud of?

RB: I’m particularly proud of the culture we’ve built at Bassett Creek Services. We’ve done it the right way: in an honest, transparent, genuine and ethical manner. We’ve grown from one location three years ago to 16 locations as of May 2021 with the support of 12 industry-leading executives and managers. All our field locations have maintained their own entrepreneurial spirit, yet they get the benefits of a large company with national reach. We support one another in a collaborative fashion and push each other to improve performance constantly.

It’s been a lot of hard work, and we’ve had to re-adjust plans on many occasions, yet I knew we’d succeed because of our culture and strong partnership. It’s why my favorite saying is “culture eats strategy for lunch every day of the week.”

About Rob Bauer

Rob Bauer is a managing member at Bassett Creek Capital, a Minnesota-based private equity firm focused on making direct investments in private companies in partnership with management and operating executives. Partnership is a key word for Bassett Creek. The firm creates a culture where management teaches Bassett Creek its craft (i.e., the operations of the business) and Bassett Creek teaches management its craft (i.e., the private equity business). This partnership approach creates a “win-win” scenario for all stakeholders, including owners, management, employees, customers and suppliers.

Bauer currently serves as chairman of Bassett Creek Services, an integrated family of growing restoration and renovation companies with consistent policies and procedures, building a national presence through acquisitions and greenfields. Prior to founding Bassett Creek Capital, Bauer was a member of the private equity teams at Goense & Co, New Stream Capital, Sterling Investment Partners and Piper Jaffray & Co.