Tecum Capital’s Stephen Gurgovits Jr. wasn’t impressed when an investment bank brought him a deal to buy a beer company.
“I declined,” said Gurgovits, who has worked on more than $1 billion in public and private deals over the years. “They called me back and they said, ‘No, you might want to at least take a look at this one because it’s close to you.’”
Once the Tecum managing partner saw it was Pittsburgh Brewing Co., maker of the iconic Iron City Beer, he looked deeper and saw a great opportunity in the underperforming brand.
“With Pittsburgh Brewing, it’s very much a buy, hold and invest type of strategy,” he says. “Put more capital in the business for either organic growth or perhaps additional add-on acquisitions, and do it right and do it very methodically.”
Pittsburgh Brewing is one of about 35 companies in three funds managed by Tecum, a spin out of F.N.B. Corp. Since its creation in 2005, the firm has found a successful niche, investing more than $500 million in capital in lower middle market companies.
“It goes back to our name, Tecum, which in Latin means ‘with you,'” he says. “We really base ourselves on doing relationship-based investing.”
In this Dealmaker Q&A, we talk with Gurgovits about Tecum’s evolution as an investment firm, the firm’s appetite for risk and one of his most memorable deals.
Is Tecum a lot different now that you’re not part of First National Bank?
We spun out into a SBIC program with the license we got from the U.S. Small Business Administration. That program came with a lot of concern. Gee, it’s government, it’s bureaucracy, it’s a lot of reporting, a lot of hurdles — some of which is true. But I laughed and said, ‘We’re coming out of a bank where we have all the same sort of administrative burdens, but the challenge in being in a bank is the rules were changing.’ They changed under Gramm-Leach-Bliley. They changed under Dodd Frank.
The SBA has rules for its SBIC program, but they don’t change a whole lot. As long as you’re playing by the rules, it’s a great game. We have a lot more autonomy, a lot more freedom, and it’s nice to control our own destiny, versus reporting up through a corporation. That’s no knock on the bank — the bank’s been a great partner and continues to be a partner as an LP, or limited partner, with us. But it was nice to get outside of that regulatory burden.
What principles does Tecum adhere to when acquiring companies?
No. 1 is you make your money on the buy. You’ve got to buy something correctly for the correct valuation under the correct structure. The fallout from not doing that correctly over the past couple of years has yet to occur, because people that were paying too much two years ago can probably sell that business today for even more. But at some point, it will come home to roost.
The second big principle for us is the management teams — backing good teams. Who are the operators? Who’s going to run the business? You can take a very good operator and a bad business, and it would work. You can have a very poor operator and a very good business, and they can mess it up.
What’s your appetite for risk?
In general, we’re industry agnostic. But in terms of our risk, we probably tilt a little bit conservative for a leveraged financial group. We structure our deals with a margin of safety.
I tell any of our prospective or current limited partners in our funds, we’d be happy to introduce you to any of our current or former portfolio company CEOs or presidents, and I guarantee you won’t hear anything bad about us.
It’s easy to be a great partner in good times, but you really show your true colors as a financial partner when things aren’t going as well, such as we saw in the Great Recession or we see from time to time in individual companies that have their little hiccups.
What’s an example of a memorable deal with some twists and turns?
When we were still part of the First National Bank, we did a deal in Titusville, Pennsylvania, with AlturnaMATS. There was some risk going in. We backed a very inexperienced manager and ultimately one that didn’t work out. That manager brought us another individual, who ended up working with us to create some value for that business and add employees. Ultimately, it was sold to another company called Checkers (Industrial Safety Products LLC), which is private equity owned.
Everybody did quite well, and they still have operations in Titusville. It took a lot of patient capital. We got in in 2006, and we formerly exited in 2011. It was five years, which in the grand scheme of things is normal. But the volatility over those five years was fairly extreme — most of which was due to the economic environment of 2008 and 2009.
What do you personally enjoy about dealmaking?
No. 1 is learning about all the different businesses. We probably look at about 1,000 investment opportunities per year. I always find it interesting to look at the different businesses and who their customers are, how they make money, how their organizational charts are structured.
The other part of the dealmaking process I like is the relationships you build with the management teams, with people you didn’t even know who they were. Within a few months’ time and with some diligence, you become partners. Sometimes that partnership gets tested, but over this past decade and a half, we’ve built some great relationships. I think it’s indicative of how many of those former portfolio company CEOs have then subsequently invested with us or alongside us.