Akoya Capital Partners: A Sector-Focused, Leader-Led Approach
Akoya Capital Partners distinguishes itself within the independent sponsor community through its sector-focused, leader-led strategy. This unique business model is built around three core sectors, each spearheaded by industry veterans – “rockstars” as DeZara describes them. These operating partners bring decades of deep, relevant experience and domain expertise, positioning Akoya Capital Partners as a strategic buyer rather than solely a financial one.
This strategic advantage is further amplified by a dedicated transaction team composed of classically-trained private equity professionals, ensuring a robust technical foundation comparable to any leading middle market PE fund. Adding another layer of differentiation, Akoya Capital Partners includes Liz Dominic, a partner specializing in human capital. Dominic’s focus on human capital assessment and talent acquisition across portfolio companies is an uncommon yet invaluable asset in the private equity space. This emphasis on human capital provides a compelling edge when engaging with business owners and founders, resonating deeply with those entrusting their companies to new partners.
Navigating the COVID-19 Impact on the Akoya Portfolio
When the COVID-19 pandemic dramatically altered the global business environment in March 2020, Akoya Capital Partners, like many in the private equity sector, faced immediate challenges. DeZara recounts how their portfolio of eight active companies experienced varying degrees of impact. Interestingly, one portfolio company not only weathered the storm but thrived by successfully pivoting into the Personal Protective Equipment (PPE) market. This agile adaptation led to year-over-year revenue and EBITDA growth for that particular business, highlighting the importance of portfolio flexibility.
While this PPE success story stands out, the majority of Akoya Capital Partners’ portfolio companies experienced revenue declines ranging from 10% to 40%. However, DeZara reports a positive rebound, with most companies recovering strongly and, with the exception of one, returning to or surpassing pre-COVID revenue levels. This resilience speaks to the robust nature of Akoya’s portfolio and their proactive management strategies during the crisis.
The Strength of Partnerships: Debt and Equity Perspectives
In times of economic uncertainty, the strength of partnerships becomes paramount. Akoya Capital Partners found their debt and equity partners to be remarkably supportive during the initial shockwaves of the pandemic. DeZara emphasizes the proactive response from their lenders, who swiftly turned their attention to supporting existing portfolios. Lenders prioritized ensuring portfolio companies had sufficient liquidity and capital to navigate the turbulent period.
Similarly, Akoya Capital Partners’ equity co-investment partners demonstrated unwavering commitment and collaboration. DeZara underscores the critical importance of selecting the right equity partners, noting that true partnership strength is revealed during challenging times. The collaborative spirit and mutual support experienced during the pandemic have, in fact, strengthened the bonds between Akoya Capital Partners and their debt and equity partners, fostering deeper and more resilient relationships.
Playing Offense: Valuations, Add-ons, and Distressed Opportunities
Looking beyond immediate crisis management, Akoya Capital Partners has adopted an offensive strategy to capitalize on emerging opportunities. This proactive approach encompasses several key areas, starting with leveraging existing portfolio strengths. The aforementioned PPE pivot is a prime example of seizing unexpected market demands. Furthermore, Akoya Capital Partners focused on internal operational improvements across their portfolio, driving cost reduction and enhancing efficiency. This dual focus on revenue generation and cost optimization positioned their portfolio companies for stronger performance in the recovery phase.
A significant element of Akoya Capital Partners’ offensive strategy is accelerating add-on acquisitions. Recognizing that some companies may face liquidity challenges or financial instability post-pandemic, Akoya Capital Partners is actively pursuing acquisitions of companies that can be integrated into their existing platforms. They anticipate opportunities to acquire these add-on targets at more favorable valuations compared to pre-pandemic levels.
While acknowledging the slowdown in overall exit activity as business owners with struggling companies hold onto assets, Akoya Capital Partners is also strategically exploring turnaround and distressed opportunities. While not venturing into bankruptcy-level situations, they see potential in acquiring fundamentally sound businesses burdened by balance sheet issues or liquidity constraints. DeZara believes these businesses, acquired at a discount, can be revitalized through Akoya’s operational expertise and capital infusion. He also notes a “flight to quality,” anticipating continued strong interest and healthy multiples for businesses that have demonstrated resilience throughout the pandemic. Drawing on historical valuation cycles, DeZara points out that periods of recession and immediate post-recession recovery often present the most lucrative opportunities for generating strong investment returns.
Deal Flow, Fundraising, and the Evolving Equity Landscape
The interview also touches upon the shifts in deal flow and fundraising dynamics observed during the pandemic. Data indicated a surge in deal opportunities from independent sponsors during the initial months of the pandemic (February-April 2020), followed by a return to normal levels. DeZara attributes this fluctuation to the evolving roles of different investor types.
He observes a distinction in the behavior of traditional buyout firms, family offices, and emerging institutional investors like endowments and funds of funds. While private equity firms like Trivest remained a reliable source of capital, family offices appeared to become more cautious and reduced allocations to alternative investments. Similarly, institutional investors who were beginning to explore direct investing seemed to pull back amidst the heightened uncertainty.
This shift, according to DeZara, positions private equity firms with committed capital and a track record of partnering with independent sponsors in a favorable light. He suggests that these firms are better equipped to capitalize on market opportunities as other capital sources become more constrained. However, DeZara also cautions that fundraising will likely become more challenging for independent sponsors in the short to medium term, requiring increased time and effort to secure financing and close deals. The bar for investment will be higher, demanding greater scrutiny and due diligence.
A Humorous Note: Unearthing Value Beyond the Surface
Concluding the interview on a lighter note, DeZara shares an anecdote that encapsulates Akoya Capital Partners’ operationally-focused approach and their ability to see potential where others might overlook it. He recounts an investment in a silicone products manufacturer where the initial impression was far from polished. The facility lobby, adorned with dusty hunting trophies, and the plant floor, slick with silicone residue, painted a picture of a business in need of transformation. Adding to the quirky initial assessment, the founder insisted on excluding a seemingly insignificant toaster oven from the deal.
Despite the unconventional first impression, Akoya Capital Partners recognized the underlying value. The company was generating substantial EBITDA with a lean operation. Leveraging the deep industry expertise of his partners, Akoya Capital Partners implemented a comprehensive professionalization and transformation strategy. This involved operational improvements, strategic growth initiatives, and a focus on scaling the business. The result was remarkable growth in revenue, EBITDA, and employee count, culminating in a successful sale to a strategic buyer and generating a significant return on investment (over 3.5x MOIC). This story underscores Akoya Capital Partners’ ability to identify and unlock hidden value, even in businesses with unconventional presentations.
In closing, Max DeZara emphasizes the importance of adaptability and pivoting in the current business environment. He believes that companies that can successfully navigate the transition from the pre-pandemic era to the “new normal” will be the ones to thrive. Akoya Capital Partners’ insights offer a valuable roadmap for navigating the complexities and opportunities within the evolving private equity landscape.
