Blitzer-Backed PE Firm Raises $400 Million for Sports Bets

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1:50Mike Berlin:Bloomberg Audio Studios. Podcasts. Radio. News.

1:55David Blitzer:You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Private equity firm backed by Blackstone vet David Blitzer just wrapped up a$400 million funding round. They're looking to invest in unique sports related businesses like companies that staff venues and more. It's called 154 Partners. Joining us to talk about the latest funding round and more are the firm's co-founder, Isaac Harush and Mike Berlin. They joined us here in the Bloomberg Businessweek studio, the Interactive Brokers studio. Guys, congratulations on the funding round. Mike, I want to start with you and just get an idea for the identity of what you are sort of building your firm around.

2:37David Blitzer:Like sports is part of it. Middle market is part of it. Like what is the identity of the firm?

2:44Isaac Harrouche:We, our primary focus is investing in founder run businesses. So these are businesses that have never had institutional capital or investment before. And then when you think about our sectors, we're focused on business services, residential services, professional services. So think elevator maintenance and repair, plumbing, accounting firms, but then also have an expertise partnering with the businesses that power sports and live events. And you're backed by Blackstone vet Dave Blitzer, who's obviously also very involved in sports. So I imagine that still comes up in conversations. Just talk about what kinds of sports industries you are going to be interested in.

3:24David Blitzer:So taking a step back, Mike and I started our careers 15 years ago at Blackstone working with and for David Blitzer, actually when he founded Tactical Opportunities group. After Blackstone, I left to help David start and launch his family office, which today is Bold Ventures. At Bold Ventures, we did a ton of different things as a family office does. And that included buying and investing in sports teams across kind of the sports landscape. We bought teams in the US, we bought teams in Europe, but ultimately developed conviction that buying owner-operated businesses was where we were having the most fun, deploying the most capital, and generating the most attractive risk-adjusted returns.

4:02David Blitzer:Most importantly, Mike and I knew we wanted to get back together and work again. He had gone on to Viking Global. So the two of us in January of last year got together, partnered up. David backed us as both a partner in the firm and an investor to launch 154 Partners. Was it easy, Mike, to raise the money?

4:21Isaac Harrouche:I would say the stamp of approval from David was really an incredible launching point for us. And the family office relationships that Isaac cultivated over a decade building the family office is what was really helpful to get us started. And so it was people who had conviction in this part of the market, investing in small businesses that were founder led, coupled with the relationships built over a decade led to a really nice fundraising process.

4:45David Blitzer:Isaac, what's the timeline for deploying this$400 million? We have a traditional five-year investment period. We're operating with a high discipline. So we have a high bar for where we're deploying capital. We have a$400 million committed pool of capital. We're hoping to build somewhere between 8 and 12 platforms, deploying 40 to 70 million of equity per platform.

5:04Isaac Harrouche:And you've already made some investments, right, Mike? Tell us about those. Sure. So we've made an investment in an accounting services platform in the Mountain West, and then an investment in a guest services and staffing business that powers NBA venues, NFL venues, live event venues. And Isaac, honestly, has been running that deal and can talk more about it.

5:24David Blitzer:When you say that you've made an investment in these firms, are you outright buying them? So two different scenarios. We have a lot of fun tailoring our capital to the situation at hand. The accounting business was backing two incredible founders. We gave them a capital commitment to do what they do best and consolidate accounting firms out of the Mountain West. Our staffing business in sports was a dad and son run business. We provided some liquidity, but really backed the sun and the existing management team to continue running the platform. So we go back to our tech ops days, our tactical opportunities days to structure capital and partnerships in the way that best fits the opportunity at hand.

6:01Isaac Harrouche:I have to ask you guys about the threat of AI. It's something that we've been talking about a lot, and it's come into focus as more private markets are invested in companies that seem vulnerable to AI. So you have accounting services consolidation platform, sport and live event focused guest services platform. How are those two companies reacting to the threat of being disrupted by AI? They sound like software companies. It's a great question. On the accounting side, it's certainly a company that needs to be at the forefront of investing in AI because there are so many things that you can do around improving and optimizing the process that it takes for accountants to do your tax returns.

6:42Isaac Harrouche:On the guest services side, this is a people business. These are the folks in the stadium that are taking your ticket, that are the ushers, that are on field security. That's not an AI business. It's almost the opposite. And honestly, it could be a business that benefits from the displacement of labor in AI. Because all of our staffing, or all the people that we staff, this is a great second job for them, being at the stadium, seeing a Taylor Swift event or an NFL game. So we actually think that on the labor side, that could be a boon for us on the staff.

7:11David Blitzer:So just quickly, in our segment of the market, these are founders who have never taken in outside capital. And in many cases, they themselves are looking at the threat of AI and thinking, how am I going to react? How am I going to adopt the latest trends of technology? And it actually helps us cut partnerships because we can help these companies, help these founders implement AI in fighting kind of what's going on in the world. ultimately when you hold one of these companies for a while you then do whatever you do to improve the business to bring margins up to make the business more efficient do you hold on to it are you going do you spin it off does it ipo yeah we have sell to another private equity firm like what does that look like we have a traditional fund life but the beauty of our business is that we're backed today by a lot of family offices who have permanent capital themselves so they're not necessarily looking for that big payoff the next number of years.

8:02David Blitzer:And our founders frequently don't want us to tell them that we're going to flip their business in three years. So do we look at an IPO? Probably not. But we have a lot of flexibility to in terms of selling to a strategic selling to a larger sponsor, which is a core part of our thesis, and have a lot of flexibility as the 10 year of capital in terms of our ability to hold these businesses.

8:20Isaac Harrouche:How would you kind of rate the current, I guess, fundraising environment? Like how easy is it to deploy capital when this is a year that there's obviously rising geopolitical tensions, people talking about AI taking over everything, and obviously a lot of headlines about private, mostly private credit, but difficulties in private market, private market investing. At our part of the market, we're investing in businesses between two and$15 million of free cashflow. And this, as I mentioned, could be a plumbing business that is super focused on the local jurisdiction that they are and don't really have the same issues facing them as large macro mega cap companies.

8:59Isaac Harrouche:And so we're really just focused on improving the operations of those businesses. And certainly if with gas prices increasing, that could have an effect on a consumer. And so we have to be cognizant of who are the end customers that we're selling to. But in terms of the day-to-day operations, it's not really affecting them so much.

9:15David Blitzer:But if you go to a business like this, they might look at you guys and say, what do you know about plumbing? What can you actually do for us? Like, you don't know how to change, you know, do you know how to change the toilet? No, I think, I think we think like I don't. When we're looking at an investment. Yeah, you got to change the toilet. Change the toilet. Okay. You got to. Everybody needs to. So I think, I think for our business, you need the capital. Clearly I'm not a plumber. You need the capital. You need the team. You need the idea like plumbing services. We meet on a monthly basis. Mike oversees our review committee process.

9:46David Blitzer:We meet Mike, David, and I to review themes like plumbing to say, okay, we're going to go out and chase businesses in this sector. But it's not just the capital. It's not just the team. It's not just the idea. We need to pair that with a founder that can talk the talk and can go to founders with us and say, this is the reason why we are a strategic buyer. That's what we did in accounting. We backed an amazing founder in the Mountain West who was a local person in the community that accountants can look in the face and say, okay, I can partner with you. It's not just Isaac and Mike from New York trying to buy your business.

10:16David Blitzer:And that's how we win deals. How do you find the businesses? Like, obviously you have an idea. Okay. I think this could be a good category to go after, but there are, you know, X number of businesses in that category and not everyone has created the same.

10:29Isaac Harrouche:You got to get on the phones. So we have, once we ideate a theme, as Isaac mentioned at our review committee, we have two specific business development professionals who are at conferences, making cold calls and getting on the phone with these founders to see, is this investment in this sector even viable? And then all of our investment professionals as well, moonlight, not just on execution, but also let me see if I can go get in front of these founders and convince them that we are a trusted partner with which they should do business. Mike, tell us about one of those themes, maybe one that's more unexpected than we would think.

11:02Isaac Harrouche:More unexpected. So one thing that we're having a lot of success with is in the sports realm is in golf. And so while we are at Blackstone, we built a really nice business in the golf course management and ownership category. And right now there are a number of very large platforms in that sector, but not as many on the smaller end of the scale. And you have a number of golf courses, 16 ,000 in the United States. About 11 ,000 are public. 4 ,000 or 5 ,000 are private. And these are some that require capital to grow those businesses. The bunkers need help or the greens need help. And members are leaving.

11:37Isaac Harrouche:And so this is one area where we're partnering or hopefully partnering with a fantastic founder who's done this before to go out and build a business of scale.

11:45David Blitzer:Isaac, you guys just raised this$400 million fund. Are you already starting to think about raising the next fund? I think we're having a lot of fun focusing on our day job, which is building the firm, building the team and finding great investments. We're really excited about the first two deals that we've done. We have a very active pipeline that we've been developing over the last 12 months. I think we'd see a line of sight to deploy Fund One over the course of the next 12 to 18 months, but our priority is to deploy the capital in the right way and to build our portfolio companies. How many businesses do you think you will acquire with this fund?

12:17David Blitzer:I think we will operate slightly more with more concentration than a typical private equity fund. I think we're excited to build 8 to 10 platforms. We want to be more concentrated because we want to be able to lean in and help our companies grow and scale, as opposed to spread ourselves too thinly over a big portfolio.

12:33Isaac Harrouche:This is kind of a selfish question because now I'm covering credit. But are any of the portfolio companies tapping into debt markets? And if so, are they able to or are they too small for that right now? Oftentimes, they're too small. I think the way we think about it is let's build a platform, get the first couple of businesses where we can operate with them and then think about leverage thereafter. But once again, very modest. We want the composition of our returns to be free cash flow yield, meaning we buy businesses at attractive and fair valuations, and then organic growth. Oftentimes, private equity, the return composition, is leverage and multiple expansion.

13:10Isaac Harrouche:We'd like it to be the opposite.

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