Episode 42: Collin Roche - Co-CEO and Managing Partner of GTCR

0:00This week on Generating Alpha, I sat down with Colin Roche, a leading architect in modern private equity and a key driver behind some of the most significant value creation stories in contemporary business. As co-CEO and managing director of GTCR, one of the most established and successful private equity firms, Roche has spent decades partnering with exceptional management teams to transform middle market companies into market leaders. Roche's career is defined by his deep expertise in financial services and technology and healthcare sectors, where he has identified and executed investments that have fundamentally reshaped industries.

0:35He has served on the boards of dozens of highly successful portfolio companies, guiding them through periods of intense growth, strategic M &A, and technological innovation. In our conversation, we spoke about the methodical partnership-driven approach that underpins GTCR, how he collaborates with world-class talent, the mental models he applies spotting strategic inflection points in mature industries, and the discipline required to generate outsized returns across multiple economic cycles. It's a rare look inside the mindset of a private equity veteran who has quietly influenced the shape of the global middle market and whose commitment to world-class management partnerships continues to define one of the most respected firms on the planet.

1:16If you enjoyed this episode, please follow the podcast and rate it five stars out of Spotify, subscribe on YouTube, and share it to anyone else you think might find it valuable. I really enjoyed recording this episode, and I hope you guys enjoy listening. Thank you. thank you colin for coming on i really appreciate it likewise thanks for your time well i want to start where i always do at the beginning so start off tell me a little about your childhood where you grew up and how you describe that kind of environment you grew up in sure uh i mean my my childhood was uh kind of a classic you know american uh you know grandparents were all immigrants.

1:55Originally was in New York, right outside of New York City. My father was a fireman in the South Bronx, actually, and one of seven kids. And then midstream through my childhood, we relocated to Southwest Florida. So, you know, very different environment, culturally and climate and otherwise. But I think I got a sense of both in terms of my upbringing. But I think the But the stronger point is, you know, very much a aspirational, you know, hardworking environment, you know, a sense that, you know, if you if you have dreams, if you work hard, if you, you know, leverage your talents, you can make yourself something, you can accomplish something, you can make a difference in the world.

2:39So I was fortunate to have that. It wasn't always easy, but I appreciate it much more sitting where I sit, looking back at how that shaped me and give me resilience and other attributes that I've leveraged across my life. In touching on the topic of a hardworking environment, I've done 41 episodes of this podcast so far, a lot with leaders such as yourself, whether they be investors or operators in the world of finance and investing. And I've noticed that excellence kind of seems to be preceded by either being excellent at something at an early age or having proximity to excellence at an early age.

3:10Do you think that was true in any way, shape, or form in your beginnings? I mean, I guess that's harder to say for me. I'm in a classic kind of, you know, middle class, you know, emerging middle class, blue collar to middle class trajectory with my parents who are very focused on education and the opportunity for their seven kids. I would say that that sense of excellence really came from my parents, both my mother and my father. But, you know, my my my father, you know, never went to college, but had this had a very active mind, you know, true hero in terms of what he did and how he led his life.

3:48as a, as a fire officer. But, but, you know, also it was just focused on the opportunity each of the kids had in front of them. And so I would say that was the, that was the excellence was do things the right way, work hard, you know, have values, you know, stay true to yourself. And there's, you know, there'll be a lot of opportunity if you, if you do that. And so that, that was really, you know, kind of a guiding light to me in my childhood and, and, you know, throughout, and then now, you know sitting where I sit uh living a different life I look back at you know the values what what I learned then and try not to lose contact with those incredible and after high school you go on to pursue your education at Williams before going on to work for Goldman I'm interested because a lot of people on Wall Street um don't come from necessarily a liberal arts education background so how do you think tell me a bit more about your time at Williams and how you think that kind of liberal arts education really informed your view and perspective that you still hold to this day.

4:48Sure. Yeah. And I think it's, you know, what's right for the person and what environment do they want to be in and what are they trying to accomplish? I, you know, I had some schools I, you know, didn't have the opportunity to go to and I had some schools I did have the opportunity to go to. One was Wharton and I, knowing at that point I was very focused, I knew I wanted to go into finance and investing. But, you know, I came out of a different environment than many. I knew that. I could go the deep finance route of a Wharton or somewhere else. But I felt like coming out of public schools of mixed qualities, but not the rigor that some other people came out of, that I could broaden myself socially, academically at a place like Williams.

5:37And it would be a great place to be for four years and have that experience and then still have the potential to get to the exact same place. So to me, that was compelling. I made that. That was, you know, one of the first and most important decisions I made in my life. It turned out to be great for me. I really, you know, broadened myself in that environment. I made a great group of friends. But I'd also say, you know, just the academic rigor and the rewards of intellectual curiosity were, you know, fantastic. You know, people who go to liberal arts schools will often talk about learning how to learn.

6:10And I do think that is a critical element. That's not to take away from technical skills or things that can be more applicable to your job. But our world changes and it changes quicker and quicker. And I found I have really good pattern recognition, really good ability to assimilate different pieces to kind of create a narrative or understand a story. And I've got to attribute some of that to a place like Williams, where you studied a lot of different things. Also, you write a lot. And writing is thinking. And if you write a lot, you learn to think better. You're crafting your arguments. You're refining and refining to get to a better outcome.

6:52So if you're in a place where you have many papers and they are fairly harshly graded, you just get better at it. And it helps refine and hone your intellectual processes. And that was good for me developing that discipline, again, coming from the public school environment I came from to put myself closer to parity with some of the folks who had come out of much more demanding, rigorous secondary schools. And you mentioned that before you went to Williams, you knew that you wanted to go into the world of finance. Where did that come from? A lot of people don't have that direction that early in life.

7:26Yeah, I mean, I think somewhere in my early teens, I developed some confidence academically and intellectually throughout schooling and was rewarded for that and identified for that. So that gave me a sense of confidence. I can be successful in the world. But I had an interest in markets. My father had an interest in the stock market and followed that. And I invested relatively early. So I think that's an important trade. If you're 13 or 14 and you're making stock selections and you're aware of the broader world, I think that is an important attribute. I also kind of lucked into a job with a small software development company, and this was in the late 80s.

8:16So it was a very different world then, but it just so happened where I lived. There was a software development company that was somewhat relevant. And I became, you know, I had an office job there and I got tremendous exposure. And that showed me the world of potential, you know, not just finance or investing, but I could, you know, get into software and tech. or, gee, there's other doors, there's other avenues. And it just kind of energized me professionally. Notwithstanding that, I thought, how does the world work in our capitalistic market economy? Ultimately, allocation of capital and markets are central to that.

8:55They're not the only thing, but it's an important thing. And that always interested me. Markets interest me for the relevance. They're relevant to everything we do and everything we produce. And I appreciated that at that age. And then also, I just felt like I liked I liked trying to make decisions with good information and, you know, and be right. Sometimes I think, you know, investors or people have that orientation. They want to they want to do the work to be right. It's not just, you know, you know, betting or hoping you're right or, you know, going with it, going with an instinct. It's like, what can I do to be right?

9:33And that was appealing to me. So I thought investing and finance broadly was a good fit for me. But I was fortunate to have a father, particularly one, hadn't gotten to college, who had that much interest and could get me involved in that. And then the world kind of opened to me from that. That resonates with me from the kind of position I'm in, in a sense. But I'm also interested because you mentioned being able to tell a story. When you went to Williams, learning how to tell a story. And I think a lot of people look at the world of finance as a very quantitative, analytical space. But I think what I've learned over speaking to many people such as yourself is telling a story is one of the most valuable skills one can have.

10:13So I'm interested in how you'd categorize the role of storytelling in what you do in the broader world of investing in capital allocation? Yeah, I mean, I would say, you know, it starts with recognizing the world isn't static. The world is dynamic. It's ever-changing, and there are forces changing the world. And there's a history. There's a backstory, an origin story, however you want to call it. So I'm, and I think the liberal arts education helped in this regard too, because sometimes the most basic questions are the most impactful. Like, why does this industry exist? What forces in the past shaped it to the way it looks today?

10:52Do those forces still exist or are there new forces that are changing it? And there's something of inertia to the old way of doing business, but there's an opportunity to do things differently. So I think I've been successful, as many are, in terms of thinking more in terms of where we are as a point in time that had a past but also has a future. And then I also tend to think that that gives me a sense of, well, where are we going? And that's not deterministic. We're not going to a single place. There's lots of different places that an industry or a company can go or stock if you're investing in a stock.

11:32So looking forward to, gee, what I try to transport myself into the future three or five years or whatever the investment horizon, what might be different? And what are the different set of outcomes that might have shaped this decision that I made three or five years ago? And so I think that sense of we're in a dynamic world. Things are changing, understanding the forces that are changing those, having the humility that there are some things you can't predict or can't explain. but then thinking through the different scenarios to a set of outcomes, for me, has been a framework that both looking to the past and why are we here where we are, but also looking to the future and looking at scenarios has been helpful in how I think about making investments.

12:13History doesn't repeat, but it does rhyme. And before joining GTCR in 1996, you spent a couple of years at Goldman Sachs. And a lot of the greatest investors and operators over time have come out of Goldman. Why do you think it was the right kind of place for you to be before this journey? Yeah, I mean, I don't know. I didn't work in other places. And, you know, obviously a lot of successful people came from outside Goldman. What I'd say from my experience, you know, Goldman at that time in particular had the focus on recruiting people who were smart, hungry, you know, very strong work ethic. And from all different demographics.

13:02So somebody like myself who was from a less affluent situation, but other people from much more affluent, but there was a commonality. I think the partnership culture that they maintained was one of a dialogue and building consensus. And I think that's really important. It's very important at GTCR in the way that we make investment decisions. But that relies on good communication. That relies on a long-term orientation. You need to have some common values. I think it's important not to, you know, or to make sure you're not straying into some gray zones. So at that time, Goldman was just a great place to work.

13:40It was a very hardworking place. That came somewhat naturally to me, but it tested me. And then when you take your first real job, particularly Wall Street job, you just have to adjust to a different way of working. And no matter what you've done before, the intensity and the need to get everything right was just different. And that, like, you know, going to Williams built a discipline in me that maybe, maybe, you know, there were things I would have been sloppy about before, but just the precision. And the last thing I'll say is when you work really hard environment like that, you have the potential to always look at the rest of your life and say, I'm not really working that hard, even if you are.

14:24So I think that that is good. I had that kind of work ethic, but being in that environment was just a really good professional foundation, developing professional skills and in an environment where people were truly focused on kind of getting to the right answer and willing to have the dialogue and constructive debate to get to the better answer. and after goldman you joined gtcr in 1996 and for the past almost 30 years you've are around 20 you've worked your way up through the ranks um and so now to stage your co-ceo managing director um alongside dean mihas and i'm interested in if you to pick one or two deals that you'd say are the most formative um to you have the biggest impact on you as a person What would they be?

15:13And I'd love to just hear the stories behind those deals. Yeah. I mean, one thing I'd say, I was fortunate to join GTCR when I did. And I had some fortunate things that happened in my career, including coming out of business school in 2000, which was a break in the market, but was a fantastic time to invest in private equity in the early 2000s after the market broke. So there were some fortunate elements and there were some predecessors here who had gotten the firm to a great place that I'm a beneficiary of. And many people I worked from and learned from were very team oriented. So I'd want to emphasize that.

15:50That's fundamental to, you know, my success, our success is that commonality. You know, I think that, you know, I had an orientation toward value. definitely found myself reading security analysis and different value-oriented texts and then more modern things like McKinsey book evaluation. These were things that were important to me, and I was grounded in being a value investor and probably didn't appreciate growth as much. But I think what some of the more successful deals are deals that have been priced on a value basis because rightfully that the risk return was value but had a growth potential and therefore could turn into a more spectacular investment because you bought something for a fair price, but then you were able to make it a more predictable growth business that would therefore earn a much higher multiple.

16:57And that requires being a bit contrarian and also seeing value under the surface, which is part of being contrarian. One investment was an investment we made in a company called Verifone, which makes point of sale terminals. That was a growing electronification of payments was a theme that we were investing in behind in credit card processing. And likewise, we knew the industry. But this business was just a mess. And it had been part of Hewlett Packard and had bad financial back office and bad data. But I believed in the manager. Before we go back to the episode, I want to take a short break to talk about my sponsor, Rowe.

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18:19Terms and conditions apply. To learn more, visit rho.co slash generating alpha. Rowe is a fintech, not a bank. Checking and card services provided by Webster Bank, member of FDIC. See your award terms for details. Thank you, and back to the episode. You know, we, based on our industry work, developed conviction, even though the data wasn't very good, that the demand was there. And on the basis of that sustainable demand, that was fundamental to that because the numbers were just kind of wild, and you couldn't really quite make sense of what was going on. So in lots of investments, there is a little bit of a jump of faith somewhere.

18:56It's an educated bet, but you have to think about what's knowable, what's not knowable. In this case, some of the data was just messy. Ultimately, that proved to be we were investing at a very good time when values were depressed. This company had gone through some not so great leadership prior to this new manager coming in, And there was a lot of potential in the industry, we thought, for proliferation of those devices. And then we had some luck along the way where some trends, more broadband helped that business, better video terminals helped that business, faster processing chips and cheaper process.

19:35So at some point, we got into a virtuous cycle where technology change was allowing us to deliver a better product, which was increasing the demand for the product and increasing the prices at which we could charge for the product. So, you know, part of that was absolutely, you know, lucky, but you put yourself in a place to get that, you know, favorable outcome if you provide for the base return that we think this is a highly recurring business that, you know, we'll be around even if we can't, you know, we don't have 100 % confidence in the numbers. You spoke about growth potential. How does GTR specifically approach a business to make sure that kind of growth potential materializes?

20:15Yeah. Well, I mean, one thing I'd say, private equity, I think, is a somewhat unique asset class in the sense that you can impact outcomes. And that's true in some other categories, venture notably, but venture is much more binary. and private equity, you have a potential to work closely with the management team. That's very much our style, collaborative, constructive. We're working on a team together to make change in a business, to make it a better business. And that is an incredible advantage relative to trying to be a stock picker and not having that advantage. And it's more fundamental too, in the sense that I'm much less good at predicting where the market's going to go.

21:02Maybe, you know, I don't know if anybody is, but certainly that's not, you know, what I think is my forte, but getting into complexity, getting into the people issues. And, you know, I especially say when we look at an investment, we're looking at what can we in management do with this business to make it a better business. And we're looking at it over a long horizon. Some of the things to your specific point might be, gee, we're not growing as fast as the industry because we don't have this product capability or geographic coverage or leadership or we're underpricing or delivering bad service.

21:38Whatever it is, most of the businesses we invest in, there's an opportunity for enhancement. I would say every business has an opportunity for enhancement. But we're definitely looking at businesses where we say, this is a very good business, but it can be even better. And we're going to work closely with management to make those changes. And then when that starts working, like the Verifone example, it can become a virtuous cycle where you're executing well, you take on some challenges, you execute against those, and then you take on some more challenges, execute against those, and then more and more.

22:08And then, you know, over time, you've addressed a bunch of the opportunity set in the business to make it just that much more of a growing, predictable business, better competitive barriers relative to other competitors. There's just joy and satisfaction, I think, from that, you know, focus on excellence, focus on improving the business. So that's very much the way we invest in GTSAR. I think that's the opportunity in private equity. I think how different firms' impact outcomes varies, and some impact outcomes in very different ways than GTCR does. But that's, I think, what's really, really special.

22:44And also just feeling connected to the business. As I thought about being an investor, I thought about trading stocks or participating in markets and had that opportunity to go more down that route. But I thought that would be less rewarding back to the economy, the market capitalist economy, feeling like I'm deliberate, I'm directly contributing to value creation and growth in a business. That was important to me then and remains so. And we just spoke about the investment period where GTCR adds value, but I'd love to take a step back and kind of zoom out in the sense of we'd love for you to describe kind of a typical lifecycle of a deal for GTCR.

23:21So how you source, what draws your attention, how does the diligence process work, what the holding period looks like, and then ultimately how do you decide to exit? Yeah. I mean, this is hopefully not trite, but there's no typical, and that's important. Our industry has become very process-based. You've got bankers, they run a process, the process takes three to five months, there's QB, there's all these standard process-based things. And that's important, but that's not how deals get done, at least at GTCR. We're not a deal shop in that kind of mindset of just getting books in the door and reacting to them.

24:01We are deep in our industries, working really hard to know the different players in the industry, different companies in the industry. What are the growth vectors? What's the opportunity? Hopefully have some view of what's coming around the corner. But then very importantly, knowing the managers and knowing, you know, talent, executive talent that we might work with. So when a deal happens here, there is a serendipity element of, gee, we've known this management team for several years. Maybe they had a corporate owner and we were hoping that the corporate would divest in a corporate carve out.

24:37Or, gee, maybe it was an entrepreneurially family-owned business and we thought we can back them to go to the next step. or a business that had some really good people and really good potential, but needed a new leader, really needed somebody to step in and make that change. So whether we're backing the incumbent team or a new team, there's always got to be a sense of there's opportunity here with our capital, with our industry expertise, paired with management, working together to create, to do something different. Nothing we invest in are we investing saying, let's just do exactly the same thing and keep going.

25:12And there are many investors that have that approach and that's okay. But our approach is we've got to change agenda. And so we're looking for things that have that opportunity. And it's not a playbook in the sense that every deal is different. Every deal has some different attribute of how you might create value. In some cases, we really want to invest in the sales function. We think maybe it's got a good product, but the sales is not really that great, or we want to develop a different distribution channel. Or in some other cases, it's operational excellence and technology and technological spend.

25:49In some other categories, it's scale and market coverage. M &A can be an important component to that because if you want to add some product set or add geographic coverage, M &A may be a more effective way to do that. So typically, we're deploying that as part of our value creation strategy. But I'd emphasize again, every investment we make, this is part of the problem solving. And really, the fun of the job is seeing what levers might we pull together to make this a more valuable business. And I'm interested in, you've been at GCCR for around 30 years now. And with that, so the rise of mega funds like Blackstone, like Apollo, pay KR and even like in the private credit world, like Aries, Blue L, et cetera.

26:34How do you think the way GTCR thinks about investing as a whole has evolved over that time with respect to how these gigantic mega funds have scaled? I mean, I think that those are all really good firms. But the firms you mentioned are typically trying to do a lot of different things. And we are trying to do substantially one thing well. investing in private equity to build better companies with deep industry vertical expertise and a transformational agenda change agenda to improve the business and so that we just keep focused on that i think the the growth in our industry as exemplified by the growth of some of those firms has also created the opportunity for us to invest across a much wider size range of deals.