Brian Demkowicz has always thrived on the fast-paced nature of dealmaking activity.
After he graduated from Purdue University, he returned to his hometown of Chicago and took a job at Heller Equity Capital Corp., which was later bought by GE Capital.
“They were recruiting a lot of young professionals, throwing them into the fire and giving them a lot of training and experience,” says Demkowicz, now managing partner and co-founder at Huron Capital. “I went through an intense credit training for a couple years. I worked in the M&A cash flow lending group, which was a relatively new idea at the time, and then into another new group, which was private equity. We were using Heller’s balance sheet to pursue middle-market buyouts.”
Demkowicz felt right at home. He eventually started his own firm, Huron Capital, which has established six investment funds totaling nearly $2 billion and has invested in 150 businesses throughout North America.
“We pride ourselves on being an astute investor and properly being able to assess risk and price it,” Demkowicz says.
This week, we revisit our conversation from earlier this year with Demkowicz to learn more about his approach to making deals.
Stick to your plan
Huron Capital has certain industries it likes and others that the firm tends to steer away from.
“We’ve passed on our fair share of deals, where we’re glad that we passed because it turned out to be a terrible deal for other people,” Demkowicz says. “We’ve found over 20 years that sticking to our knitting and not venturing into the deep end of the pool, where we may struggle, has really served us well. There have been times over the course of our history where we invested in industries and broke our rule. We learned our lesson and did a deep dive to understand why.”
Deals that look great on paper aren’t always so good once you dig into the details.
“We looked at a deal that had great margins and was a great company,” Demkowicz says. “But it was a single product owned by an individual owner with no succession plan. They sell to one distributor who is 70 percent of their revenue stream. They outsource their production to one manufacturing company. Would I love to own it as an individual as a lifestyle business? Sure. But as a private equity play, I’m not so sure. There are things you like, but things that are structurally difficult for us as a group to get our head around.”
For Demkowicz, deal flow is a constant topic of discussion in the board room.
“Everything we do is a process,” he says. “We have a process for executing a deal, for managing a deal and a process for deal flow management. We have what we call a pipeline report. Everything goes into a customized database that we built that tracks all of our communications, including deal flow. All the deals go in, and then, as a group, we spend the first part of every Monday going over the pipeline.”
More time is allocated to deals that are considered the most meaningful. There is also time reserved to analyze the pace at which deals are moving through various stages of the process.
“As a deal goes on the log, it might be initial review,” Demkowicz says. “But after a week or so, as people spend time with it, it might move up to preliminary due diligence or issuing proposal.”
He says those are the deals they spend the most time on.
“We figure out if it’s the right deal for us, and then figure out a plan of attack,” he says. “Usually within a reasonable amount of time, we can get to those deals that make sense.”
Tracking metrics is the only way to know what you’re working on and whether a process is working or needs adjustment.
“We track metrics every week, including deal flow coming in and where it’s coming from,” he says. “We track visits, we track our conversion rate from visits to proposals and proposals to letter of interest and then to closing. We track all of that. If, at any time, one metric gets out of whack, we have 20 years of stats. We can make a pretty quick adjustment.”