Alan Goldfarb - Orangewood Partners

0:09Alan Goldfarb: Welcome to Northstar's Private Equity Fast Pitch, and thank you for joining us on this journey into the high-stakes world of private equity, where bold ideas, big capital, and brilliant minds collide. In each episode, we sit down with the trailblazers shaping the industry. key leaders, CEOs, founding partners, and visionaries from top-tier private equity firms, influential limited partners, and investment banking powerhouses. These aren't just conversations. They're front row seats into the strategies, insights, and personal stories from the thought leaders driving the deals that define markets and transform businesses.

0:57Alan Goldfarb: Whether you're a seasoned investor, an aspiring young professional, or just curious about the forces moving the global economy, you're in the right place. So get ready to dive into the fast-paced, high-impact world of private equity with your host, the podfather of private equity, Jeff Henningsen. What if one of the best ways to win in private equity is to stop chasing deals. My guest today is Alan Goldfarb, founder of Orangewood Partners, a private equity firm that's doing things a little differently. While much of the industry is competing in auctions and racing to get deals closed, Alan and his team often spend years developing relationships with business owners before ever making an investment.

1:45In fact, on average, Orangewood knows a business for four years before investing. But here's what's especially interesting. Alan isn't just buying businesses. He's building an ecosystem of entrepreneurs, operators, and investors who want to keep working together, sometimes across multiple businesses and investments. So how do you build a successful private equity firm around relationships instead of transactions? And can that approach actually give you a competitive advantage? I think you will enjoy hearing Alan answer these questions and more on this episode of Private Equity Fast pitch.

2:21Alan Goldfarb: So let's get it kicked off. Alan, welcome to the podcast. I'm really excited to have you on. You're a little bit of a unique investor in what Orangewood focuses on. We're going to get into the foundation story of Orangewood in a little bit, but I'd love for you to start a little bit earlier in your career and walk us through some of the things that you went through that led you to starting the firm. So if you would introduce yourself and let's get it kicked off there. Great, Jeff. Appreciate you having me. Orangewood really started many years before Orangewood, the firm. We started Orangewood 10 years ago, but my background is really what brought Orangewood together.

3:02I grew up in Cleveland, Ohio. Father was a hardworking physician, did a lot of things in the business world, but I always had an interest in doing something in business, but didn't know anything about private equity. And I was fortunate. My first job was investment banking at Merrill Lynch, which was actually the second day of the job was 9-11, which was a terrible event, of course, and something that had to learn how to persevere and figure out how to bring people together and work together to get through it. When we got back to work, My first day that I was staffed on a job was a buy side for a KKR portfolio company where the associate happened to leave and I got kind of seconded into working there.

3:51And then my second job that I was staffed on was actually a dual track sell side as well as an IPO option. And that was for an advent portfolio company. So I got to see the bookends of private equity and really learned what private equity was all about. But I didn't know what happened in between the buying and the selling. And I started spending a ton of time learning about that and really realized that was something I wanted to do. So fast forward after my couple of years of the analyst program, I was fortunate to have an opportunity to go to the Carlyle Group, where in addition to learning a lot about private equity, I ended up helping to start a lot of new business units and new strategies within Carlyle.

4:36And then fast forward close to 10 years later, I was recruited to go help lead a new initiative for a new fund called Senator that was affiliated with the Blackstone Group. And from there, I really learned how to be an entrepreneur and starting something from really the beginning and realized that this is something I wanted to go do and was fortunate to have a lot of supporters and people that I'd worked with and for over the years that encouraged us to really start Orangewood. And so what were the core theories or premise around what you're going to do at Orangewood when you started the firm?

5:14Yes. So the idea was quite simple. It was as a lot of these larger institutions were getting bigger and bigger, the types of deals we wanted to do were differentiated deals. So finding differentiated deals than a typical PE firm would be participating in broad-based auctions. So first, finding differentiated deals. Second, making sure we establish a wonderful place to work and all the stakeholders would be proud of being a part of what we were going to be building at Orangewood. And third, we are in the investment business and want to make sure we make good investments and do well with our investors' capital and are good stewards of their capital.

5:57So the third piece was really creating return opportunities that investors would be proud of. And I'm going to ask you about the name Orangewood because it is always fun to see how people name their firms. And I think now people are mostly looking for things that aren't already taken. as opposed to maybe back then. But give me your story about how you came up with the name Orangewood. Jeff, it's actually funny. Probably when people ask what was the hardest thing about starting a firm, there's a lot of things that lessons learned that I'm happy to give to people. But coming up with the name was the thing that probably took the most amount of time.

6:37And always we wanted to create something that had our Midwestern roots front and center. And Orangewood is actually the neighborhood in Cleveland, Ohio, where Neil and I grew up in and our family. We had an older brother and with our parents, so the five of us. But Orangewood was always a special place to us. It was really a neighborhood where it was one big family. Certain people would move away, but they're always part of the family. There's still some amazing people that live in Orangewood today. And the other thing that we learned, there weren't a lot of orange trees in Cleveland, Ohio, when we were looking at the name, we realized that the orangewood is actually part of the bark on an orange tree.

7:17It's called orangewood and is known to be one of the strongest barks of any tree and has been used for a variety of things, including growth and rehabilitation. And what came to us as we were researching this, we realized orangewood is really what we try to bring together in one word. And that's the Midwestern values, the Midwestern roots, building something that could last and has the strength to also help things grow. So with that foundation and a great name that goes along with what your aspirations are a little over 10 years ago, talk to us about how that's transitioned and are you where you thought you'd be in building a business?

8:02So something we're proud of and something we talk about all the time is the culture of Orangewood and integrity, humility, hardworking, transparency. Those are the things that rooted from day one into Orangewood. And so we're really proud of what we built. It's not just the folks that are in our office here in New York today, but just last week. We had our annual operating partner meeting where we bring our operating partners, our CEOs, CFOs of our different partner companies together. And what's amazing about it is we actually represent more than 15 ,000 employees across the United States, spread across our different platform companies.

8:47And it's something that we're quite proud of in that we continue to bring a great group of people together. And something else that's interesting is those who we work with, we continue to work with going forward. Something we were looking at the other day, six of 15 companies today are repeat management teams. And so it's something that we're quite proud of. If we're working nicely with people, keep them in the family. They want to stay in the Orangewood family. And let's continue to find more and more things to do together. Well, and that has to be a good leading indicator that your culture and teamwork not only happens at Orangewood, but also at the portfolio companies.

9:28It is something that we take a lot of pride in. And again, it's not just an owner-operator model. We focus on a lot of these family-owned, founder-led businesses. And we don't just go in there and buy their company and hope we can figure out how to make it work. Our sourcing model is something that's, we think, quite unique in that the average length of time that we've known a company before we've actually made the first investment is around four years. And so what's interesting about that is we get to know them quite well. They get to know us quite well. And we're not just throwing capital their way and hoping we can align on a game plan going forward.

10:09So there's a whole value creation story, not only how to make the company better, but a lot of these family-owned companies or founder-led businesses have unique personalities to them. Each one's different. And so what are their goals? Do they have family members that want to continue with the business? Do they have people that have been part of their team since beginning, whether it's 10, 20, 30, 40, 50 years that these companies have been around? And what are their goals? And it's not just a financial goal, but there's also a lot of personal goals associated. So really spending the time to understand what's important.

10:48And if we could be that right partner to help them accomplish their goals, that also fits with our goals, then it's the right fit. So we haven't gotten into where you invest. So why don't you walk us through the sectors that you're focused on? We focus on business service companies, as well as franchise and multi-unit businesses. And we particularly focus on those areas for a couple reasons. One, they're areas we've had a lot of experience with in the past. And we know generally these areas quite well. And we could bring a lot of resources and know-how to be able to help these companies go from good to great, from great to even better.

11:32And so that's the first thing. The second thing is within those areas, we focus on businesses that have great long-term tailwinds. So no matter what's going on in the world or the economy, there's still going to be businesses that need to show up and do the work. And also businesses that are quite fragmented. Let's use franchising as an example. Franchising is a huge industry. It's roughly 4 % of U.S. GDP. But the average franchisee in the United States only owns roughly 1.5 units per franchise. So there's not been a lot of institutionalization in the underlying franchisee base, but there are some phenomenal businesses inside of these franchisees.

12:19So how do we help them take their businesses, institutionalize them, and really scale them? So I know ServPro is one of your more recent portfolio companies. How does that fit into the thesis that you just talked about? When we look for a new investment, we always start with a white paper, deep research, thesis-driven approach. And we've been spending a tremendous amount of time looking at various home and commercial services, whether franchise or non-franchise business models. And one of the areas that fit our core areas of focus is, broadly speaking, the restoration sector in the United States.

12:59It's roughly a$60 billion market. For the last 20 years, almost every year it has grown at a mid to high single digit CAGR. And we were trying to figure out why is that the case? Is our analysis correct? Is our research correct? As you peel back the onion quite a bit, you start to realize that these are critical services that no matter what's happening. If someone's sick with COVID during the COVID outbreak, they couldn't wait five days if they had a leak, a flood, a fire until they were feeling better to get their basement fixed or their commercial office building fixed. That needed to happen in the moment.

13:38You know, if the stock market's down 10%, a commercial office building or an industrial warehouse can't wait until the market comes back. If there's a critical emergency happening in their building. They have to get it fixed. In the world we're living in today with AI, for the foreseeable future, robots or computers can fix the problems. The individual with a hard hat still needs to show up and do that work. And so AI can help make that individual better, you know, more efficient, but certainly they need to show up and do the work. And so we started to look at this and said, this is a really neat industry.

14:16And taking down the funnel, it was massive fragmentation in this $60 billion market that was growing. And Servpro happened to be the largest player in the space. But interestingly, Servpro Corporate is really just a franchisor. They do a heck of a lot and they're great partners, but they're more of a sales and marketing engine like a lot of franchisors are, but the actual work that was done inside of the ServPro system was 100 % done by over 800 individual franchisees. And until we came in, there was not one institutional investor in the ServPro system. And so this to us was quite an interesting idea because there's the great long term market growth, significant fragmentation, together with our franchise capabilities of helping to institutionalize a business for scale could be a win-win-win, a win for us, a win for the right partner that we find, and then also for Serpro Corporate, the franchisor, because as we can help scale businesses, it helps the franchisor.

15:26And in the services area, are there any trending spots that you see as opportunities over the next 12 to 24 months? Yes. What we've done with ServPro, ServPro is both a residential and a commercial service provider. So there's both white and blue collar services that we like to look at. And we're spending a lot of time in both of those areas today. One of our earlier investments that we made several years ago was Office of the CFO in the broader accounting services space, an area that we've really been investing heavily in. There's a lot of areas within business services broadly. One of the things we try to do is not recreate the wheel.

16:08And so if there are things that we have done well, and then we can find something that ties into it, like in the case of ServPro, we've done a lot in franchisee investments on the underlying franchisees and how do we scale. So we have a playbook that we've created on franchising. And so we looked at ServPro as an example, and we're able to recreate that just with a different brand. And so we try to figure out ways where we could take our expertise and our experiences, hopefully expertise, but certainly our experiences, and continue to put that into place time and time again. So let's talk a little bit about after you invest in a new platform portfolio company.

16:51You have on operational value creation strategy. Give us a little bit more overview of what that is. Yeah, this is an area that we've invested heavily internally at Orangewood, certainly over the last several years. We always like to say it's one thing to make an investment, but what do you do with that investment? And our view of the private equity world is interest rates aren't going to be close to zero for the foreseeable future. There's a lot of risks in the world, the deficit, inflation, interest rates, you name it, conflicts around the world. And so you really have to be an active partner to help grow and scale businesses.

17:34And what we look at is sort of our operations focus together with our sourcing, we believe is our key two differentiations. but they go hand in hand. It's not a deal team will find a deal and then close the deal and then send the ops team in to go figure it out. It really happens at the onset. I think I mentioned before the average length of time we've done a company before we make the first investment is four years. That's not just one of us. That's our team, our operations team that spends a lot of time creating the business plan. We're not reacting to a sim in 30 days and deciding if we can make this investment or not.

18:13We're building business plans together. And so when we actually make that investment, we've already been partners, not formally with the legal document, but we've already been partners. And it's just continuing that playbook that we've been talking about and actually helping with before we actually make that first investment. So we have a dedicated team. We call it our FIT team. It's F-I-I-T, starting with the foundation, going through the investment and the integration phase and then the transformation. But the key is it starts at the beginning, the foundational phase. And so we have a dedicated team, but it's an integrated team with our investment team.

18:50And you talked about partnership. And I think there's an interesting question to ask you with your background in distressed investing and special situations. I know that's not what you invest in now, but when you have a portfolio of companies, not everything sunshine and roses every day. And if I'm one of your operators and I get into a situation that's a little bit stressful, talk to me about how you handle that and how you help me through that. Yeah. Two words that I'd answer quickly and then give more of the background. It's people and alignment. And if you have the right people and the right alignment, you can work through anything.

19:29And that's part of the thing of knowing a business, knowing your partner before you invest. It's not just us knowing them, them knowing us. And you can do as much diligence, whether it's weeks or months or years, inevitably, like you said, Jeff, something's going to happen. Whether it's an accident at a company, whether it's something happens in the industry that no one could have thought about or in the world. And how do people react and respond? People is the key part. If you have people that are great team players, that know how to operate and know how to act in good times or bad. We use a lot of sports analogies here.

20:09We need players and coaches that are good in all environments. If you're winning, if you're losing, you're still keeping that same mentality. If you have three home runs one game or strike out three times, you shouldn't see a different personality. It's okay to celebrate the wins, but you need to focus on the next game. And so that's something we think about all the time. What's going to happen? And by the way, it could be a really good thing that happens, but it could just be a one-off thing. And so you can't just get too excited about that one-off thing. And so that's something we always focus on.

20:39Do we have the right people? And do we have the right alignment? If you have that, amazing things can happen. What came to my mind is my parents always told me, whatever you did, you're never as good as you thought you were. And you're never as bad as you thought you were. So don't act on either emotion. I got to know the mental coach for the New York Yankees a little bit, came to a couple meetings that we had, and he told this story about Mariana Rivera. His door was the first or the last door, depending on if you're leaving or coming, between the clubhouse and the parking lot. And Mariana Rivera, you would never know if he just set the record of saves of all time or blew a ninth inning.

21:22watching him come and go, you would never see a different emotion on him. Yeah, it's interesting. That leads me to a question. I don't think I've asked any of my guests yet is that you've served on a lot of boards. What patterns are you seeing with exceptional CEOs that you've come in contact with? What do they do that makes them special? There's common patterns, whether it's exceptional CEOs or leadership. Our big belief is these are team sports. Owning and running and operating companies are team sports. It's not an individual sport. As much as I love tennis and golf, these are more baseball and basketball and football teams, including the farm systems below them.

22:00And the leaders of these great CEOs, I'm sure they're intelligent, but they don't have to let people know they're the smartest person in the room and it's their way or the highway. They need to be able to make decisions, but they also want to be able to work as a team and learn from others and so being a good listener is just as important as being able to present your ideas that's a big common theme and the second thing is things change businesses grow businesses shrink things happen and like ai today there's a lot of people who say why would i change anything it's working and it's worked and there's some amazing people out there that I think are going to get stuck because they're not willing to try to adapt.

22:47Then on the other hand, there's people who say, oh my gosh, we got to go do it and just implement it. And I don't care what happens, but there's a process to this. And one of the things like in AI that we've learned over time, it was the same thing. AI happens to be the technology today that everyone's talking about, but this is no different than technology evolution. Understanding the process and who can go implement it and what team members can work together to implement it. You need that foundational data before you can get to the answers. And so just understanding that there's a process to put these things together and you need to work collaboratively are some of the other key parts of what we like to see in management teams that have had success and we believe will continue to have success.

23:33Well, and you mentioned the buzzword of the year, AI. What are you guys doing and seeing in the AI bucket in your business? Yeah, we are firm believers that AI has the ability to be great. It already is great, and we're seeing a lot of interesting results from it. For us, it's less about cost cutting, and it's more about how do we use and implement AI and all the related technologies around it to be able to scale more efficiently. And so whether it's internally at Orangewood, how do we do our job better and more efficiently? Investor reporting is super important to us. How do we work with AI to make sure our investors are getting more timely, more accurate, and better information on what's going on with their investment, as an example?

24:25At our portfolio companies, the same thing. Whether it's our Taco Bells or our Serve Pros, being able to figure out what are the processes, the procedures that are in place today, and how do we implement AI? And it's not just how do we do it, but who do we work with at the company? What resources can Orangewood bring to be able to help scale these businesses much more efficiently? The important thing that we do as well is we look at the return on that investment. And so it's not just us sitting on a perch and saying, we have to implement AI at these companies, go do it. We take it one step at a time and maybe it's multiple projects, but let's try it.

25:08And sometimes people need to see it, that it's working before you take the next step. And what are the results? And so we now have, I'll give you one quick example, in our Taco Bells, we have the ability to see real-time transactional data. Whereas before we had great information, but maybe it would take a day or a week or a month to realize something's going on at an individual location. Now, real time, we can figure out maybe the manager wasn't able to show up that day. And how do we know that? Because we see five or 10 or whatever transactions in a row aren't working, right? Something's off on the margins or the speed of service.

25:53And so instead of figuring it out after the fact, he or she maybe had an emergency and we didn't backfill that role for that day. But now instead of worrying about it that day, we can figure that out in moment's notice. That is really a sign of the times. That's fantastic and amazing that you have that kind of visibility. So, Alan, I think you guys do something a little bit different than a lot of the firms that I know fairly well. And you take this Orangewood family, almost, if you will, the ecosystem of all your relationships and kind of bring them into your environment. Can you talk about how you do that?

26:29Yeah. So it goes back to people and alignment. And the third word I'd mention is just transparent, open communication. And we don't view us as just the investor and we have different stakeholders around. We view ourselves as an intersection of all of these great partners. So whether it's investors, I mentioned the 15 ,000 plus employees we have underneath our portfolio companies. We work closely with a lot of our investors. We are closely with our third-party service providers from accounting, tax, insurance, of course. And we find ways, like, they're all looking for whether it's growing their business or strategic ideas.

27:10Sometimes they're great ways for Orangewood to do more, like deal ideas, or sometimes they just need help. We have a number of investor partners and a number of third-party partners on the service provider side that are going through transactions themselves. And not always is it relevant for Orangewood, whether it's an area that we can bring a lot of help or an area that we're focused on, but we're happy to help in different ways. And so one of the things we're most proud of is when good things happen to our partners. And even if it's not an Orangewood deal. And so it's not just about the deal business.

27:51It's about creating that family and that culture that we have. And so that's something we really pride ourselves on. Well, I love that. And I'm going to transition into my question about advice for young professionals. And before we jumped on, you talked about how when you had your first investment banking job, you actually didn't even know what private equity was. And then the very first day people were talking about their next job when they were just showing up for their first day. So I'm sure there's probably some advice that you're giving young professionals these days that have some of that probably early experience that you had in your career.

28:24But what are you telling young people when they say, hey, Alan, what would you do if you're in my shoes if I wanted to be in private equity or an investment banker? I go back to a quote. It was something my father used to always say, and I'm sure he got it from somebody else, but it's chance favors the prepared mind. And you never know what's going to come out of a conversation. So the corollary to that is take meetings, learn, but be prepared for those meetings. And so you might be able to get something out of a meeting that you never expected to get if you're more prepared. And like you said, my very first job, I wasn't super prepared to understand what private equity was.

29:05But the reason I got that first assignment and then that second assignment for those private equity firms is I was told I did, I guess, reasonably well on the accounting and finance part of the training. And so they ranked people based on how well you did to get staffed. And so if I wasn't prepared for that training, and I'm sure there was a lot of more intelligent people in that room than I certainly was, but I was more prepared. And so when you're prepared, you never know. I didn't know that they were going to rank you and staff you based on that. I just came prepared because that was something I was always told to do.

29:45So I think preparation is key. Jeff, I think I've heard your son say or you say something similar where preparation keeps things in motion. And that's very similar. Your mind should always be moving. And that's how you learn. And that's how opportunities come. So I'll give you another funny story that is relevant to that. One of the first deals we did at Orangewood was with a guy who became a mentor of mine over the years. I was introduced to him through a college professor of mine. And when I moved to New York, I didn't know many people. He invited me to meet him for lunch. I didn't just show up at lunch and hoped I was going to get a free meal.

30:24I didn't know if I was paying or not, but I did a bunch of research on him and we became fast friends and he became a mentor now for 25, 30 years. And so you never know where things are going to go. I'm sure he had plenty of other things that he could have done besides take me to lunch. And I felt to me, it was something that I owed it to him to be prepared and make it an interesting and fun lunch. Well, in that point, and I'll just share this for our young listeners, it is very common for my guests like Alan here to 60 days later say, you know, I was interviewing somebody for a job at my firm.

31:00And we had five interviews and three of them didn't know anything about me. And two of them clearly had listened to a podcast and done other research. So I think that preparation does show up and stand out when you're on the other side of it, for sure. You already threw out a quote. Do you have any other favorite quotes or mottos that you have to share with us? Yeah. One of my other favorite quotes is the harder you work, the luckier you get. And this was something from my dream was always to be a professional sports player, whether it was for the Cleveland Cavs or then Indians, now Guardians, or probably wasn't going to play football.

31:35But I'd show up to these tryouts for these travel teams and eventually all state teams or whatever they were. And if not the smallest, I was among the smallest out there, both size and height and stature, you know, certainly didn't walk in that gym or that room or that field. and they would say, that kid's going to be on our team. But I'd outwork everybody there and make sure they know, you know, when someone's tired, I'm going to go buy them and I'm going to be a great teammate and work my tail off. So good things happened because of that hard work. And so I think the same thing when it comes to young professionals, there'll be days where you might not be that busy and you might say, you know what, it's five o 'clock.

32:17I'm going to go and meet up with some friends. And when you look over to your left or to your right, see other people working hard, it doesn't take a lot of effort to go and ask one of those colleagues of yours, hey, is there anything I can do to help? They'll probably say no, but maybe they say yes, and you never know what happens. Something lucky could happen. Or go to your staff or your boss and say, I got everything done today that I was scheduled to do. Is there anything else I can help with? They'll probably say, go enjoy your evening. Don't worry about it. There's a chance they give it to you.

32:50Go do more work. You're going to learn. And it just shows the initiative. So that hard work is something that really goes a long way for your career. That's fantastic advice. I've had so many guests say things like, I was the only one in the office at nine o 'clock and the owner came by and asked if anybody knew XYZ and that ended up leading to something very important in that person's career. So you just, to your point, you make your own luck sometimes. Alan, this has been a really great podcast. I know my audience is going to really enjoy it. I want to ask you my final question. If I'm a seller of a business looking for a private equity partner, and as you know, there's lots of different opportunities or options out in the marketplace, and I've got it whittled down to two, one of them being Orangewood, what are the things you want me to remember tonight as I'm making that final decision that will tip me your way?

33:40I think if you're a seller of a business, it depends on your goals. If your goals are on that transaction to maximize the price and you don't necessarily care about who your buyer is and what that means for the rest of your team, which is okay. That's what some people like to do. There's a number of great investment bankers out there that will help you accomplish that goal. We have this conversation all the time. We'll pay a fair price. We'll invest a fair price, but we're really looking at as a partner. And so if your goals are to work with a great partner who can help accelerate your business and not just sit at a boardroom and suggest things or tell you how to do things, but work collaboratively with our ops team, we could be a great partner for you.

34:28So I think it really depends on your goals. If your goals are you care about having a great partner and you care about your team and your people and the next evolution of your business, that's where we hope to be a good partner for you. Well, Alan, thank you so much for joining me today and wish you best of luck in the future with Orangewood and everything that you guys do. Jeff, you've been so kind with your time. I really enjoyed the question and the conversations and look forward to seeing you and your partners again soon.

35:00Alan Goldfarb: Thank you for joining us for Northstar's Private Equity Fast Pitch. For more information about Fast Pitch or our boutique private equity heavy hitter events, you can visit us at enorthstar.com.