Patrick Galleher - Boxwood Partners

0:09Welcome 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 own businesses.

0:57Whether 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. Welcome to another episode of Northstar's Private Equity Fast Pitch. I'm your host, Jeff Henningsen. My guest today is Patrick Gallaher, founder and CEO of Boxwood Partners. Patrick has one of the more unique backgrounds of any investment banker I've had on the podcast. His career began during the earliest days of the internet.

1:39When at just 23 years old, he walked into Yahoo's offices when they only had 36 employees and helped develop a relationship that would last more than a decade. A few years later, he became the youngest CEO of a public company on the London Stock Exchange. Since then, Patrick has experienced the M &A world from almost every angle. He's taken a company public, acquired businesses, taken a public company private, invested his own capital, operated a franchisor, owned franchise locations, and ultimately built Boxwood Partners into one of the leading sell-side advisors in the franchise industry. Along the way, he's also navigated some extraordinary market cycles, from the dot-com collapse on September 11th to the global financial crisis, experiences that have given him a very different perspective when advising founders through one of the most important decisions of their lives.

2:33In today's conversation, we talk about Patrick's journey, why private equity has become so attracted to franchising, what founders need to do before taking their businesses to market, and why finding the right partner can matter far more than getting the last dollar in a transaction. We also get into Patrick's unconventional approach to building his own team, where roughly 85 % of the firm are former Division I athletes, and some great lessons on hard work, creating your own luck, and putting yourself in position when opportunity appears. Now we'll get kicked off with Patrick Gallagher. Patrick, I'm really excited to have you on the podcast today.

3:11You're somebody that is a little bit unique in that you've had a front row seat to entrepreneurship, public markets, franchising, and M &A, and also experienced two downturns at pivotal times of your career. So I think what I'd love to have you do is start in your journey side of how you got to starting Boxwood by starting in 2000 or somewhere around there and walk us through those years before you started Boxwood.

3:38J. Patrick Galleher: Thanks, Jeff, for having me on today. Really appreciate it. Just a little backing up back to 1999, probably 1998, I took a quick stint in 96, trying to play professional golf. Fairly quickly learned that there were a lot of other better players than me on the mini tours. And I took a job with a company out of London in 1996. Started off as a sales rep calling on public company CFOs to disseminate their annual reports through the Wall Street Journal, Barron's Financial Times. Quickly started learning about this thing called the internet. The founders of the business didn't know anything about the internet at that time.

4:15J. Patrick Galleher: We had just got an email at the firm and talked them into letting me go visit Xsite, Lycos, AOL, Dogpile, and a small company called Yahoo out in California. So in 1996, 23 years old, I boarded a plane, went out to Yahoo and ended up getting a deal to manage some of their edgar filings and sec pages yahoo only had 36 employees at the time and went back and recommended to the company and the two founders that we put all of our ducks behind yahoo and forget about aol excite lycos and ended up picking the right horse quickly got asked by the wall street journal and financial times and nasdaq to help them figure out what to do on the internet late 96 early 97 as they started talking about launching their first interactive edition at Wall Street Journal.

5:06J. Patrick Galleher: So over the next 36 months, became a go-to guy within the dot-com space for financial information and quickly got a lot of interest from investment banks in the US and in Europe to take us public back at the height of the dot-com growing bubble, let's say. So long story short, ended up doing a successful IPO in the London market in July of 2000. It would have been a lot more successful if we'd gotten out in November of 99 in the US. But a banker in the US gave some pretty poor advice on waiting to get a billion dollar valuation versus something a little bit more realistic. So we ended up getting public in July of 2000 in London.

5:46J. Patrick Galleher: It was a great experience, went through the whole IPO process, used the cash to buy several companies around the world, grew the company. And then in 06, and I don't want to gloss over too much the time from 2000 to 2006 being I was the youngest public company CEO on the London Stock Exchange back in 2000. So it was quite an experience and then had to manage the company through September 11th. And that was quite an experience when all your revenue is tied to public companies in the New York Stock Exchange and it's closed down and not knowing when anything was going to reopen after September 11th was quite a learning experience.

6:25J. Patrick Galleher: You can't plan for every potential issue with the business. And then ended up starting a tender offer in 2006 to basically buy the company back from the public shareholders, hired an investment bank out of Chicago to help me find the money to tender offer and delist the company, which on itself was quite a process trying to buy back a company with 50 % of its revenue in Europe, 50 % in the US, and then how to fund that with debt across, we actually used the Bank of Scotland, which had its own difficulties in 07, 08. It was quite a learning experience. And so parted ways with the private equity firm shortly after taking it private.

7:07J. Patrick Galleher: And that's how I started in Boxwood. I really looked back at what did I enjoy doing as a public company CEO? I really enjoyed the IPO. I really enjoyed the acquisitions of synergistic companies that helped us on a product and a geographic scale. and then I really enjoyed the take private situation. So I ended up partnering with two bankers from Harris Williams to start Boxwood and then 08, 09 hit right after we started Boxwood which was quite a lull in M &A activity in the US market. So I turned to doing a little bit of merchant banking, bought several companies for our own portfolio and then in 2012, 13 really turned back to just pure advisory and worked out of some of the portfolio companies that we bought.

7:53J. Patrick Galleher: And then since then, we've been solely focused on sell-side advisory. It's pretty much all we do is sell-side advisory. With that background, I would assume that when you're speaking with a seller, you have a much different credibility because of all the experience that you had, not only in just your positions in running companies, but also going through those multiple financial difficult times in our economy. Correct. The good and bad about today's investment banking community is there's not a ton of investment bankers that were around in 2000, 2001, and 2008, 2009. That perspective, how quickly Lehman Brothers and Bayer and things turned down, how good everything was in 06 and how bad it was by the end of 08.

8:41J. Patrick Galleher: It's really hard to put into terms and hard for a younger investment banker and younger private equity guys to really grasp at how quickly the economy can turn on itself. And it happened in 2000 with the dot-com change. Who would have thought that pets.com would go under after doing a multi-billion dollar IPO? And the same happened in 07, 08, when some of the strongest financial institutions in the world ended up disappearing over a 12-month period. I mean, Washington Mutual, Wachovia, names at Bear Stearns that no one would have ever predicted in 2006 would be off the map and disappear were all gone.

9:20Give us an overview of where Boxwood is today. What do you focus on? What's your client type mix that you're representing?

9:29J. Patrick Galleher: We're best known for our franchise practice. We definitely lead the league tables in franchise-related deals. We've done 70-plus franchisors. We do a lot of large franchisee group deals, and we do a lot of franchise service provider. I think technology that is in and around the franchise space, we've done quite a few deals of franchise sales organizations that really help franchisors manage their franchise development efforts. So we're very well known in the franchise space as the go-to sell-side advisor. And then our other part of our practice is really consumer products, light industrial. And we've done a lot of deals in and around the food ingredient and co-packing spaces.

10:13I want to dig a little deeper into the franchise world because I know you've had multiple experiences before starting Boxwood and then after starting Boxwood with franchises. talk about Sweet Frog. And I think that probably also is a reason why founders would lean into working with you because of that experience.

10:31J. Patrick Galleher: Yeah, no, that's a great question, Jeff. Appreciate it. Sweet Frog came to us. They were a young, growing franchisor in the frozen yogurt space back in 2011. They were too small for us to represent it from a Boxwood perspective, but we decided to take a minority stake in Sweet Frog and help to put in place a board and proper corporate governance. And then in 2015, as we were growing, I had to step in as CEO for the founder. We ended up growing it to 380 locations around the country in 41 states. And then we exited that investment to Kahala Group out of Arizona in 2018. So that really gives us the ability to talk to the franchisors as a former franchisor.

11:19J. Patrick Galleher: And I'm actually still a franchisee of Sweet Frog. I still have 10 locations that we run. So not only have we advised on 70 plus franchisor deals, I ran a franchise or a CEO, and I'm still a franchisee in the system. So when a potential franchise deal comes across our plate, we can actually speak to the CEO and the founder from a much different perspective than just a investment banker who's done a couple of franchise deals. And what makes franchising such an attractive investment opportunity for buyers? One, predictability. The high free cash flow conversion. Most franchisors run at about a 50-55 % EBITDA margin, no CapEx need on an annual basis.

12:02J. Patrick Galleher: If you have a solid franchisor, the EBITDA multiples and the cash flow supports a lot of debt and really becomes an attractive place for private equity to invest. 10, 15 years ago, very few private equity firms were focused on franchisors. And now there's hundreds that actually are proactively searching for franchisor investments. And especially with the AI change in technology and the investing landscape out there, more private equity firms are looking for investments that can't be disintermediated by AI. And the brand, the franchisor model really is only helped by AI. They become much more efficient, much more profitable, able to train franchisees better and able to make unit level economics at the franchisee level much better by utilizing AI.

12:56J. Patrick Galleher: So we've seen a lot of software PE firms start looking at franchise or investments as a way to reallocate part of their portfolio out of software and into franchising. So what you just described and where my brain's going is that the AI software is helping them be more efficient at the overlaying layer of the enterprise, but the activities at the franchise are things that AI can't replace. Exactly. So AI is only additive to the franchise model. It's helping the average HVAC franchisee become more efficient in servicing HVAC units across their territory. It's allowing them to service customers through AI agents, getting back to customers quicker.

13:38J. Patrick Galleher: It really is making their ability to scale their franchise system much more effective than it was pre-AI. You recently said that many franchisors aren't ready for private equity. What are investors looking for that a lot of founders miss? Really putting in place the management team, the training of new franchisees. It's a chicken and egg in franchising. As a franchisor grows, they've got to hire training associates and territory development reps to help their franchisees implement the systems and best practices as they grow royalties at the same time. A lot of franchisors, when they're only at 10 locations or 20 locations, they're not ready for private equity investment.

14:27J. Patrick Galleher: We really look at a system that 50 million of system-wide sales or 100 locations as being the level when it really makes sense for private equity to get involved and start looking at them from a potential investment standpoint. And I know that over 70 % of the sellers that you represent are founders. So I can imagine that type of environment. What are the things that you do to help founders prep their way to be ready to sell? We have a very good internal model that we go through all the P &Ls of our potential clients and current clients. And we always do a sell-aside quality of earnings. Once we're engaged, we have our clients hire a third-party accounting firm to do Q &B.

15:11J. Patrick Galleher: So we know the good, the bad, and the ugly before we ever take a company to market to potentially bring in either a new private equity firm or the first institutional capital for founders. We really help them think through, are they getting all the potential rebates back from their vendors? Are they charging the right marketing royalties to their franchisees? Are they allocating the national advertising budget correctly? Are they really focused on helping their franchisees improve unit level economics and not just grow royalties? So you can think about Subway is$5 foot long. There's a lot of things that franchisor can do that can limit profitability at the location of that franchisee.

15:52J. Patrick Galleher: So you got to be careful, especially as an emerging franchisor, that you're looking at the picture holistically and you can't create value at the franchisor level if your franchisees aren't making money and don't have a good payback. So you really have to balance the two of those as you start ramping your franchisor system. You've done over 100 transactions. What separates a founder who has a great experience and one that regrets selling their business? I think getting your expectations correct up front and knowing what your objective is when you go into a process and you hire an investment bank to help you.

16:31J. Patrick Galleher: I always equate it to no one wants to sell a racehorse when it's won three races in a row. Everyone wants to sell after it's lost two. and you have to go to market when you're hidden at all levels and you're performing well. I have more potential clients tell me, we're going to slow down next year. I want to sell next year because this year we're growing really fast. And that's exactly the wrong time to sell. You want to sell when you're on an upswing and we can get a higher multiple, better terms, create a more competitive process within the private equity community. You don't want to wait for things to slow down.

17:10J. Patrick Galleher: and level off before you do a transaction. You want to be able to show a lot of upside to potential buyers and investors versus showing them stability or slower growth. I know we'll talk about quotes later, but it reminds me of that quote, all my rich friends sold too early, right? You never lose money by taking a profit. So you got to be very purposeful on knowing what you're trying to achieve. And also finding the right partner versus finding the last dollar in is really critical. And I coach all of our clients on that. You really want to find a partner who's going to take the brand to the next level, going to be good for you to work with.

17:48J. Patrick Galleher: Getting an extra $5 million on a$150 million transaction shouldn't be the overriding decision point. It should be finding the right terms, the right partner. We always have our clients ask, what's the operating cadence of the private equity firm? Are they in the business on a daily basis? Do they just want to get a monthly board pack? Do they just want to attend quarterly board meetings? Every private equity firm has a different operating cadence on how they like to interact with their portfolio companies. And if you're someone who needs that daily attention, that's one type of private equity firm.

18:23J. Patrick Galleher: If you're somebody who really doesn't want your role to be impacted that much, that's a whole different group of private equity firms. We try to really help our clients decide in their own mind what they want in a partner and not just a dollar figure that they want. So you have an incredibly cool team recruiting structure, and I'd love for you to talk about that being a D1 athlete myself. I think I would have been very attracted to working with your firm out of college, but give us a little overview of your formula there. So Boxwood has grown ever since 2008 through interns who were mostly Division I athletes at University of Richmond.

19:00J. Patrick Galleher: I think close to 35%, 40 % of the firm is University of Richmond and about 85 % of the firm are Division I athletes. So that's basically our intern recruiting class is typically made up of Division I athletes from various target schools of ours. We find that it helps a lot. Investment banking is a tough business, a lot of rejection. You have to have good time management skills and you gotta be able to deal with failing more than succeeding. On every deal, we go out to 100, 150, 250 private equity firms. You're only going to do the deal with one private equity firm, but you're going to hear how bad that company is from 249 and do the deal with one firm.

19:41J. Patrick Galleher: So you have to have pretty thick skin. You have to have a lot of tenacity and you've got to be willing to put the extra hours in and know how to manage your time at Boxwood. So we have found over time that Division I student athletes provide us the best staffing for deals and the best success for our clients. I'm going to transition into an area that I talk to a lot of my guests about, advice to young professionals. But I actually want to maybe pull a little bit more of your history out of you because you were a D1 golfer in college, going to school. How did you transition from that world to getting a job offer in London and having the mindset that you could do what you did?

20:27We have a lot of young listeners who are incredibly smart. They're at Ivy League schools or high-level schools. They're overachievers. And a lot of them, I don't think, think they can do what you did. Walk us through that time period. And did you just go? Or what happened that caused you to take the reins and become who you were?

20:47J. Patrick Galleher: I think it's a confluence of factors. One is I was out of money. So I had$33 ,000 in credit card debt graduating college. My father had passed away my freshman year. and my mother was bankrupt. So after a short stint of trying to play golf for a living, I had to take a job and got a job with a company out of London. And my base salary was$18 ,000 my first year. I got lucky and I do speak to a lot of university classes. The question always comes up, what was your big break? How did you make it? And the quick answer is I was the only one in the office at eight o 'clock at night dialing for dollars, making sales calls.

21:22J. Patrick Galleher: And one of the British founders walked into the sales bullpen and said, anyone know about something called the internet? It seems like it might be a real thing. And I basically said, Graham, I know everything about the internet, even though I wasn't quite sure I knew much about it. And we put together a plan for me to go visit AOL and Yahoo, Excite, Lycos, and other search engines to talk to them about how they were going to manage financial information on the internet as part of their searches and their financial pages. And so at 23, I traveled around the country and met with a whole bunch of CEOs who wanted to talk about financial information and ended up walking into the Yahoo office when they had 36 employees and a golden retriever sitting on the floor.

22:08J. Patrick Galleher: And I had a suit on from Richmond, Virginia and everyone had Birkenstocks and cutoff jeans and ended up building a relationship at Yahoo. And they asked me if we could do a few things. And I said, yes, even though I had no idea what those things were. and came back to the office in Richmond, Virginia. And we had a technology team that went to work and trying to figure out how we could host and co-locate webpages for Yahoo in Europe and the U.S. and signed a contract that stayed in place for 13 years with Yahoo. It was quite a journey. And it's one of those situations where the confidence of being a D1 athlete that you can get stuff done and say yes and make it work paid off in that case.

22:47So what are you sharing in your classes to those students on broader advice for them as they start to enter the workroom?

22:54J. Patrick Galleher: Hard work pays off. You got to work hard to put yourself in the right situation at the right time. No one else on the sales floor had the opportunity to say yes to the founder because everyone else had gone to the pub or gone drinking at 5.30, 6 o 'clock. And I was the only one still trying to make money at 8 o 'clock at night. I was there every night with the founders were still there and I was there. And quickly, you know, the hard work paid off if I wasn't dedicated to and I would say desperate to make money to pay off the credit card bills and buy a car and pay for an apartment. I think it was a combination of all those that gave me my first breakout success and quickly became the president of the company and took it public and became the CEO and became the youngest CEO in the London Stock Exchange in 2000.

23:41J. Patrick Galleher: So would that have all happened if I hadn't decided to work that night and had gone to go grab a drink at TGIF? Who knows? But you got to put yourself in the position to get lucky when it's possible. Yeah, you got to create your own luck. People say that guy's lucky, but you put yourself in a position for luck to find you. Absolutely. So I ask all my guests, do you have any favorite quotes or mottos? And I would imagine with a firm full of D1 athletes, there's probably a lot of quotes and mottos flying around your office. There's a few. And one, my mentor in business, one of the founders of my first company, he was head of McKinsey in Europe and he had a lot of good quotes.

24:18J. Patrick Galleher: And one was always, eat the elephant in chunks. Nothing is that insurmountable. If you actually look at it and dissect it and do it part by part, you can get it done. You can get anything done if you actually take it in pieces. Another that we use around here a lot is we play a lot of defense up front with deals to play offense when it counts. So we spend more time than the typical investment bank analyzing the financials. We're very skeptical of all of our clients' financials. We dive into everything possible that a buyer is gonna eventually dive into early on in the process. So that way, when we get to bids and we get to the management meetings, we can be much more aggressive on pushing valuation and pushing terms because we've already played the defense and then we can just run the offense and go from there where a lot of investment banks go out with all the positive.

25:10J. Patrick Galleher: And then they're playing defense on the retrades and the buy side QV, where internally we like to do all that defense up front. So that way later on in the process, we can really push value and be more aggressive with buyers. So it's just a different philosophy. We say around here that we're going to spend time on the defense first and then play offense later. I love that. You're gaining a reputation in the marketplace as having a pristine asset that doesn't take a lot of diligence time when you do that consistently. Correct. Correct. So we've built a reputation on that. And that's why we've been so successful at transitioning into more sponsor-backed deals versus founder-backed deals is the private equity firms that have bought companies from us have really started looking at us as a high-quality sell-side advisor on their deals.

25:56Patrick, this has been a really great podcast. I know our audience is going to enjoy listening to what you do as an investment banker because it's a little different than anybody I've had on my podcast before. I'm going to ask you my final question. If I'm a founder or a seller, and I've whittled it down to a couple of advisors that I'm trying to decide between tonight as I am meeting with my partners, what are the things that you want me to remember that will tip me your way and choose to work with Boxwood?

26:22J. Patrick Galleher: One thing that we always push prospective clients to do is call our former clients and ask them what they liked about Boxwood, what they didn't like about Boxwood, what Boxwood could have done better. We have a lot of video testimonials on our website from former clients. And it's hard for our founders to know what the process really is up front before they started. And speaking to former clients and getting a feeling for what went well, what didn't go well, is always something I recommend. And I think our former clients unequivocally are very happy with the processes that we run and they're great referral sources for us on new deals.

26:59I really appreciate having you on the podcast and best of luck. And I'm sure I'll see you on the golf course at some point in the pretty near future.

27:06J. Patrick Galleher: Thanks, Jeff, for having me and can't wait to play some golf. 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.