In the insightful fireside chat hosted by Giovanni Amodeo, David Chung, Partner and Co-Chief Investment Officer at HGGC, delved into the nuanced world of take-private transactions in the middle market. With over 29 years of experience in the industry, including a foundational stint at KKR, Chung brings a wealth of knowledge to the table.
Key Topics Discussed:
Introduction and Background: Chung outlined his role at HGGC, a Palo Alto-based middle market private equity firm with $8 billion in assets under management, focusing on sectors like technology, business services, financial services, and consumer sectors.
Evolution of Take-Private Transactions: Chung discussed the shift in take-private strategies over the years. He emphasised HGGC’s unique approach of viewing public markets as an alternative sourcing ground for potential acquisitions, particularly targeting public market orphans—temporarily undervalued or misunderstood companies.
Identification and Engagement Process: Unlike typical private equity approaches that rely heavily on personal networks and bankers, HGGC prefers direct engagement through investor relations channels, allowing them to understand companies in their “natural habitat” and build relationships over time.
Signals and Triggers for Action: Chung highlighted the importance of long-term stock price depression as a signal, indicating potential fatigue from being public, which might make a company more receptive to a take-private proposal.
Challenges and Competitive Landscape: Addressing the competitive nature of take-private deals, Chung noted the necessity of navigating board dynamics and managing multiple stakeholders, including advisors and other interested parties.
Success Stories and Investment Philosophy: He shared success stories like Monotype and RPX, where HGGC identified and capitalized on unique opportunities not well-understood in the public markets, resulting in significant value creation post-acquisition.
Investor Perspectives and Brand Perception: Chung concluded by discussing HGGC’s brand perception as a deeply committed partnership investor, which has been crucial in establishing them as a preferred buyer in competitive deal environments.
Throughout the chat, Chung provided a comprehensive view of the strategic, operational, and psychological nuances involved in take-private transactions, particularly in the middle market, highlighting HGGC’s differentiated approach and success in this complex arena.
Key timestamps:
00:09: Introduction
01:33: Approach to Take Privates
04:34: Engaging with Public Companies
07:38: Initial Meetings and Signals
08:59: Convincing Companies and Basic Signals
09:51: Company’s Perspective on Going Private
12:32: Competitive Landscape and Intermediaries
14:32: Preventing Leakage
15:44: Opportunity Generation
16:46: Addressable Market and Business Quality
18:05: Challenges and Opportunities in the Market
19:11: Key Arguments for Take Privates
22:14: Pushback on Take Private Approach
24:26: Hiring for Take Privates
25:48: Meaning of HGGC Brand
27:30: Conclusion