Leon Rubinov doesn’t like to play favorites with Incline Equity Partners investments.

“All our kids are cute,” the senior partner says. “We don’t love one any more than the other. They’re all special in their own little way.”

But, Rubinov admits, some are more equal than others — like AmSpec Holding, which the Pittsburgh-based private equity firm invested in six years ago when the business had a $9 million EBIDTA. AmSpec committed more than $50 million of capital during Incline’s three-year hold to improve facilities and open new locations. When Incline sold the provider of oil inspection and testing services, EBITDA was well north of $40 million.

“It was a challenging journey,” Rubinov says. “There were rough spots, but we got a really, really great outcome.”

Incline has raised $1.4 billion of capital through four funds, including $601 million in its most recent, which closed in 2017. Rubinov, who is responsible for sourcing, evaluating and monitoring Incline’s investments, shared with Smart Business Dealmakers how the PE firm drives value in its investments and works through challenges.

Why was AmSpec such a successful transaction?

To have a truly outsized return like we did on that transaction is a combination of doing some things right and getting lucky, frankly. But most importantly, we had a great relationship with that management team, and we were able to work closely together to build that business.

We had to change plans along the way because it was growing so fast, but that was the exciting part. There were a lot of challenges, but they were exciting challenges.

Incline owned AmSpec for just over three years. Does the firm have a set term for holding companies?

We tend to be three to five years, but we’re not driven by the time that we hold it. What we’re driven by is, ‘Have we accomplished what we think we can accomplish and are we to the point where there is another owner that is better suited than us?’

Actually, AmSpec is a great example. When we bought it, it was a regional business. When we sold it, we’d certainly covered the nation and we were starting to be truly an international player in the oil testing space. At that point, it was time for that business to be owned by a bigger private equity firm that focused more internationally than we did.

Does Incline try to execute a certain number of deals a year, and where do those deals come from?

We try to do three to four platforms a year. The reason we do that is because we view our job to be institutional investors and that means deploying capital consistently, not opportunistically. We don’t think that we can time the market.

If we had said, ‘Hey, you know, the market’s hot, we’re going to wait until things cool down.’ we wouldn’t have done a deal since 2013. And that’s not what we’re paid to do. So, we try to have discipline in deploying capital consistently.

All of our platforms are headquartered in the United States, but for add-ons to those platforms we’re international. We have done deals in Singapore, China, Malaysia, all over Europe, Canada and South America.

What are the overall dealmaking principles at Incline?

The levers that we look to pull in every transaction are:

  • Operational opportunities
  • Add-on acquisitions
  • Supplementing the management team.

The most successful transactions we’ve had are ones where we have successfully pulled those three levers.

We don’t view ourselves as making money on the buy. That’s not what we’re trying to do. We’re trying to generate returns for our investors after we’ve bought the business, that’s where we drive value.

How do you get deals back on track if a transaction’s momentum starts to falter?

When we’re trying to do a deal and if things are going sideways, it’s probably because there is a misalignment of expectations somewhere between us and the seller — for whatever reason. Things were never aligned or have become misaligned.

I have found the best thing to do to try to get things back on track is to set aside all of the advisers, the bankers, the lawyers, the consultants — let’s put that noise to the side. Let’s meet again and let’s make sure we have aligned expectations.

Let’s have that direct conversation about the alignment. Once you get that, then you can move forward or decide to not move forward.

What’s your strategy when the operations of a company in the portfolio start to go off track?

A lot of times, people want to throw resources at the problem. ‘Oh, we’re not growing, so hire more salespeople.’ But maybe you don’t have the right strategy and until you have the strategy, hiring more salespeople isn’t going to help. You’ve got to understand what’s causing the problem first. Then you can develop a plan on how to address it.