Jeffrey Stevenson has done something that is, today, a little outside of the norm: graduate from college, get a job with a firm and then stick with that firm as he climbed the corporate ladder. Today, 38 years later, Mr. Stevenson is still with the firm and its majority owner.
Stevenson joined the investment firm Veronis, Suhler, and Associates (VS&A) after graduating from Rutgers University in 1982, starting on the ground floor in its mergers and acquisitions (M&A) division. By 1987, he was managing its first private equity fund (raising $57 million), and by the early 2000s, its fourth (valued at close to $1 billion). In 2001, the company was renamed Veronis Suhler Stevenson (VSS).
“We actually started as a specialized M&A advisory firm, focusing on media companies, which back then was primarily publishing, broadcasting, and cable. We branched out into private equity in 1987, when we launched our first fund, a $57 million fund,” Stevenson explained to the Argyle Journal in 2015. “I think one of the interesting aspects of our history is that we’ve always been specialized. We were specialized before specialization was a trend. And I think that’s increasingly important in today’s and also tomorrow’s environment, as private equity becomes more and more competitive and you have to figure out ways to add value and differentiate yourself. In working with our portfolio companies, it’s more of a hands-on strategic approach than it is purely financial.”
Veronis Suhler Stevenson
The original VS&A was rooted in the communications sector. Today, VSS is focused on the information, education, healthcare, and tech B2B sectors, mostly in North America and Europe. Its realm is the lower middle market, in which it handles financing, capitalization, acquisitions, and buyouts to support the growth of innovative companies (including providing lending); its cumulative portfolio has represented upwards of $3.5 billion in capital invested.
The firm has managed seven funds; four are equity funds, and three are structured capital funds. This gives VSS the flexibility to provide crucial and well-timed support to companies that may not yet be household names. The VSS portfolio is comprised of companies that fall in the $3 to $25 million EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) range.
“We’re a one-stop-shop that provides all of the capital needs for a business to make acquisitions, pursue organic growth, and get to the next level,” Stevenson related to The Deal in an interview in January 2019. “We see an opportunity to provide lower middle market companies with capital … where our capital can accelerate growth. There’s a void in the marketplace for those types of companies to obtain capital.”
VSS provides a form of financing that can at times be challenging to arrange with more traditional lenders. For a variety of reasons, traditional lenders are not always a dependable source of capital for the lower middle market.
“While a lot of direct lending funds have been raised, there is still a long way to go to fill the void that was created by the exit of the banks,” explained Stevenson to Bloomberg News in early 2019.
The fallout from changes in lending practices by major institutions in the aftermath of the Great Recession is part of what has created the niche that Stevenson’s firm is filling.
“VSS typically targets businesses with less than $500 million in terms of enterprise value. Those size deals tend not to have the same level of access to the capital markets. They’ve tended to be more club-bank deals, which are generally financed and held by the banks in the club and therefore, generally not syndicated,” Stevenson explained in the Argyle Journal interview.
This has created what Stevenson considers an appealing market for VSS to operate in.
“The middle market is more attractive for several reasons. One reason is that you’re dealing with the bottom end of the pyramid, meaning that the availability of opportunities is that much greater because you’re talking about smaller companies. Number two is that there’s more fragmentation in terms of intermediation, meaning that there are far more intermediaries dealing with smaller companies. They tend not to be found in larger financial institutions; they team up with larger-cap companies,” he told the Argyle Journal. “The middle market has a number of advantages. If you look at the middle market over a long period, it’s been much more consistent than larger-cap transactions, which end up having a higher level of volatility because of the capital markets. What you find is that there tends to be a very high correlation between purchased price multiples and lending multiples.”
The VSS Portfolio
The companies that make their way into the VSS portfolio are usually introducing a new tech approach to their sector or rejuvenating an established business model. They are companies that are small enough to stay nimble and not get bogged down when reacting to market forces in the way that larger companies do.
“In the environment that we’re going to be in for the foreseeable future, where there’s relatively little economic growth, the lower end of the middle market lends itself to what I would call consolidation economics – putting like businesses together and leveraging synergies,” Stevenson expounded in his Argyle Journal interview. “That’s where we believe value creation will come from over the next three to five years – from building out platform companies with add-on businesses that complement existing capabilities rather than from organic growth. Middle-market companies lend themselves to that strategy better than large-cap companies.”
With this focused approach, VSS has built a portfolio over the last several decades that is marked by state-of-the-art companies. In many ways, the firm shares its financing partner’s modus operandi by being a lever for innovation within its niche. The middle market that VSS serves allows it to not only make strategic investments but also engineer profitable and well-timed exits.
“With the middle market, you’ve got more exit options. If you’re dealing with a business that’s in the range of $250 million to $500 million, you’ve got more options in terms of where you can ultimately sell that business,” Stevenson told the Argyle Journal. “It could be to another private equity fund; it could be to the public market; it could be to a strategic buyer. Whereas if you’re dealing with the large end of the large cap, there are relatively few exit opportunities.”
VSS’ focus has evolved from media and entertainment to healthcare, education, and tech enabled business services.
With its roots in traditional media, VSS’s growth in the world of global entertainment media is not surprising.
“In media, we’ve seen a fragmentation in terms of the industries. We’ve seen the obvious shift from print to digital. We’ve seen cyclicality in the advertising components of the business, and we’ve seen the secular changes in terms of the migration from print to digital,” Stevenson mused to the Argyle Journal. “They’re not the monolithic industries that we started with over 20 years ago – the television, radio and magazine business. Now, the lines are blurred. It’s part technology, part content and part delivery. There are lots of different types of businesses and business models along that continuum.”
For example, just over a year ago, VSS became a minority investor in GreenSlate, which offers a cloud-based software system to handle a wide range of bookkeeping and analytical functions for producers in the entertainment industry. Its client list includes such heavyweights as Amazon Studios, Discovery, HBO, Netflix, Paramount, Red Arrow Studios, and Sony.
Founded in 2004 and with offices in several of the United States’ primary shooting locations, GreenSlate is a company that handles much of the non-glamorous, behind-the-scenes digital “paperwork” that large entertainment companies need to stay on top of such as accounting, benefits administration, insurance, payroll, residuals, and tax credits. Given the strong prospects for global movie, streaming video, and television production, GreenSlate seems well placed for continued growth.
“GreenSlate is led by a highly driven and forward-looking management team that consistently delivers on the company’s aggressive growth plans. The company’s transformative technology and compelling prospects make it an excellent fit for Structured Capital III,” Stevenson stated at the time of the acquisition.
The investment in GreenSlate comes several years after VSS’s funding – via its Structured Capital II – of Cast & Crew, another company that specializes in payroll and related business process outsourcing (BPO) for entertainment industry firms. Headquartered in Burbank, California, and with offices in several other U.S. and Canadian production hotspots, VSS exited Cast & Crew in 2015.
On the other end of the media production pipeline, VSS held Movie Tavern – the largest U.S. chain offering in-cinema dining, with theater/restaurants in seven states – for five years before selling it to the Marcus Corp for $126 million.
“Most of the major exhibitors also have a division that is focused on dine-in theaters, and that has been a very fast-growing part of the industry as well. It’s a less mature end of the market, and therefore, there is a lot more greenfield opportunity for new builds,” Stevenson noted to The Deal when the sale of Movie Tavern was announced in February 2019. “They were as much of a restaurant as a movie theater. We approximately doubled the size of the company by building additional theaters on top of the original footprint.”
The sale did not include Southern Theatres, the sixth-largest movie chain in the United States with 433 screens in the Southeast that serve small- to medium-sized markets. VSS has retained that in its portfolio for now.
This kind of regional or specialized provider has been a hallmark of VSS’s media holdings, which have included companies like Hughes Broadcasting Partners, Broadcasting Partners Holdings, and Ascend Media.
The introduction of tech solutions to the healthcare field – everything from better tracking of routine forms to the introduction of artificial intelligence (AI) – has been gaining steam for the last decade. This is a field that is expected to continue growing.
As Stevenson told Debtwire in May 2019, “Healthcare IT businesses focused around cost containment and value-based care are generating higher multiples, and those based on a SaaS business model are commanding the highest multiples.”
VSS’s footprint in this sector can be seen in its holdings in companies like Caravan Health, which provides both hospitals and private physicians with tools to meet value-based care (VBC) requirements that are being introduced into the U.S. healthcare system. This methodology seeks to tie medical payments to health outcomes, as opposed to the fee-for-service model. Caravan Health has over 230 clients to which it provides systems for creating Qualifying Alternative Payment Models (QAPMs).
Likewise, SourceMedical was under the umbrella of VSS’s Structured Capital II fund. This company provides outpatient information and revenue cycle management services for specialty hospitals, outpatient surgery centers and rehabilitation clinics in the United States. The largest such provider in the country, it allows medical facilities to track and analyze data on patients more effectively.
Read More: Healthcare’s Pivotal Digital Moment
Tech Enabled Business Services
These kinds of tech-driven B2B services are an increasing focus for VSS.
For example, Coretelligent supports small- to medium-sized businesses in financial services and life sciences with IT services and cloud-based computing solutions. It not only enhances business operations but also specializes in data protection and internet security services. The firm Quatrro Business Support Services is an outsourcing partner that offers offshore accounting, finance, payroll, tax, and tech support to the small- to medium-sized business sector.
VSS consistently makes its mark by concentrating on a handful of sectors that it knows well. It can then provide not only funding but also added value.
“Price, of course, is the ultimate differentiator, but a close second is the value you can add to that business by understanding the industry. In a situation where all else is equal, it can be a deal clincher to be able to convince the owner and management that you understand the strategy of where the business should be going, and you can bring investment opportunities in addition to capital,” Stevenson explained to the Argyle Journal. “I can’t tell you how many management meetings we’ve been in, where that’s been a critical factor in terms of our ending up with the deal. It has always surprised me that private equity firms, in general, haven’t focused more on specialization. I think that it’s becoming a trend, but it’s more of a recent phenomenon.”
Fraxa Research Foundation
Both Stevenson and his wife Debbie are deeply involved with the nonprofit Fraxa Research Foundation (FRF) – he is the chairman of its Finance Committee and she is the chairwoman of the Board of Directors. They have sponsored the annual Stevenson Family Campaign since 2007, which has become FRF’s largest fundraiser. The foundation is extremely efficient, keeping administrative costs below four percent of the total budget, and the Stevenson’s outreach is vital in supporting the organization’s goal of funding research, sponsoring scientific meetings, advising pharmaceutical companies, and providing education on FXS.
The Center for Discovery
According to its website, “The Center for Discovery®, designated as a Center of Excellence by the New York State Department of Health and OPWDD, is a major research and specialty center that offers residential, medical, clinical and special education programs as well as world-class Music and Creative Arts Therapy, Adapted Physical Education, and a biodynamic agricultural program among other unique services.” Located two hours outside of New York City, The Center serves over 1200 children and adults needing treatment for a myriad of complex conditions. The Stevenson family is actively involved in supporting The Center, raising funds and building facilities in the local community.
Another cause near and dear to the Stevenson family is MainSprings, which began in 2006 as an orphanage for girls in Kitongo, Tanzania. It has since expanded into a community support organization that provides housing, education, healthcare, and permaculture programs in East Africa. The Stevensons have hosted fundraisers in the United States, and two of their children have volunteered at MainSprings facilities over their summer vacations.