What separates great business development from everyone else?
In this episode, Neal sits down with Grant Marcks, Partner at The Riverside Company, to explore why winning work in private equity and consulting depends on patience, credibility, and long-term relationship-building.
Grant explains how thoughtful “no” responses can create future goodwill, why silence damages trust, and how strong references compound across tight professional ecosystems.
The conversation also dives into what private equity investors actually want in consulting firms, including specialization, recurring revenue, retention, growth, and infrastructure that can support scale.
What You’ll Learn:
- Why great business development starts with long-term relationship thinking.
- How thoughtful “no” responses can strengthen future deal flow.
- Why reputation compounds across bankers, founders, consultants, and service providers.
- How “sourcing” and “closing” require different skills in consulting.
- Why private equity loves specialized, recurring, growing professional services firms.
- When buy-and-build works better than building new services organically.
Ideas Worth Sharing:
- “Don’t let yourself get caught up in the day-to-day transactional part of this job. Think about every interaction you have as an investment for the future, whether it be three years, five years, 10 years down the line.” – Grant Marcks
- “Leave good references in your wake… it can’t just be the five that you put on a reference card. It has to be the fact that I can sub rosa call really anyone that you’ve worked with before.” – Grant Marcks
- “You’re only as good as your last deal, and you’re only as good as whatever that business owner is going to tell the market.” – Grant Marcks
Resources:
- Grant Marcks: The Riverside Company | LinkedIn
- Neal McNamara: Website | LinkedIn
- Email: nmcnamara@virtaspartners.com
About Grant:
Grant Marcks is a Partner at The Riverside Company, where he sources new platform and add-on investments across the lower middle and middle market. He brings more than a decade of private equity and business development experience, with a track record of completing growth equity and buyout transactions and helping portfolio companies drive strategic, operational, and financial improvement.
Connect with Neal:
If you lead a consulting, finance, or professional services team and want to stay close to how investors and private equity are really thinking about growth and value creation, connect with Neal on LinkedIn to keep the conversation going and share your perspective.
To learn more about how Virtas Partners helps clients navigate major financial transitions from acquisitions and carve‑outs to IPOs, restructurings, and other complex changes, visit the Virtas Partners website.
Read the Transcript:
Grant Marcks: My philosophy is centered around: don’t let yourself get caught up in the day-to-day transactional part of this job. Think about every interaction you have as an investment for the future, whether it be three years, five years, 10 years down the line.
Welcome to Consulting Uncensored, the podcast that pulls back the curtain on the good, the bad, and the ugly of the consulting world.
This is where real conversations happen about leadership, strategy, culture, and careers in consulting. Hosted by industry veteran Neal McNamara, each episode features candid discussions with consultants, executives, and firm leaders who are building, challenging, and reshaping the industry from the inside.
No filters. No fluff. Just honest insight into what actually works and what needs to change.
This is Consulting Uncensored. Here’s Neal.
Neal McNamara: Grant, good to see you. Thank you for joining Consulting Uncensored on location. What I like to do at the start of these is to have you introduce yourself instead of me going through your bio and background, and then you can give a bit on Riverside and your current role here at Riverside.
Grant Marcks: Yeah, absolutely. I’m Grant Marcks. I’m a partner at The Riverside Company. I help lead our origination practice. We are a 35-year-old private equity firm focused on lower-middle-market investing, partnering mostly with entrepreneurs and closely held, family-owned businesses as they continue to grow and scale.
We do a lot of different things, kind of up and down the middle market, from buyout to non-control investing, and we’re one of the few global players at our end of the market, so we also invest in Australia and Europe. So, we’re a diversified firm, and we do a lot of different things. We’re highly active, so we do about 50 to 100 deals a year on average.
I’m a partner leading our origination team, which basically means I’m out hunting for new deals and new deal opportunities, working with our deal partners to help craft theses and figure out the best ways to invest our investors’ money, figure out the best areas and where the puck is going to be passed in the future. And then I help with corporate development and M&A and figuring out the right way to build our businesses so that ultimately they’re more valuable when we go to sell them to the next buyer. And so, that’s basically my role in a nutshell. We work across our North American funds, so that means that I get to do deals that are $2, $3 million of ARR and burning money, all the way up into the middle market, $30, $40 million EBITDA, kind of platform investments and everything in between.
Neal McNamara: So, one of the things, one of the topics I like to get into and dig into, is business development broadly. Right? And so this is an interesting one, right? Because your role is a business development role within private equity. Different from a role in a professional service organization selling, but it’s still—
Grant Marcks: Similar.
Neal McNamara: Right. And so I think it’d be fun to start with kind of your philosophy, what you see works well within your own industry. And then let’s overlay that because you guys are also consumers of consulting professional services.
Grant Marcks: Absolutely.
Neal McNamara: So, you’re selling, but you’re also buying.
Grant Marcks: Yep.
Neal McNamara: And you see best practices and worst practices, and maybe we dig into that a bit to start.
Grant Marcks: Yeah. I mean, I think at the core of it—and I can’t take credit for the mentality that I’ve adopted. I have to give credit to the people who have taught me and have come before me, and Bob Landis, who you know well.
Neal McNamara: I was with him last night.
Grant Marcks: You were with him last night. He really is one of the, I would say, the founders, the forefathers of private equity business development. And he helped put in place both the culture and the approach that Riverside takes that I’ve learned from over the course of my career. I didn’t really get into this, but I started my career here as an intern. So Bob gave me a chance, you know, some-teen years ago, and I’ve taken it and run with it, obviously.
But the philosophy is something I think you can appreciate in the consulting world: it’s a long sales cycle, and this is a long-term, partnership-based game that we are all playing. And along the way, there are transactional interactions that we might have, but my I think philosophy is centered around: don’t let yourself get caught up in the day-to-day transactional part of this job. Think about every interaction you have as an investment for the future, whether it be three years, five years, 10 years down the line. How do you want people to be thinking about Riverside? How do you want people to be thinking about you and their interaction with you?
We were talking before we started about what that might mean. And like I was mentioning to you
Neal McNamara: Some of our… worst cases, worst practices, yeah.
Grant Marcks: We say no all the time, right? As an industry. It’s an industry of, “Hey, only 1% of all the deals that we look at we actually do.”
Neal McNamara: We transact on, right. Yeah.
Grant Marcks: So, how do we turn and flip the other 99 from what could be a really negative interaction—”Hey, this is not for us.” Actually, the worst version of that is just saying nothing and letting, whether it be the banker, the business owner, the advisor, whomever—
Neal McNamara: No communication is bad communication.
Grant Marcks: It’s the worst. And so flip that on its head and say, “How do I turn that interaction into a positive?” Not for us, for the following very thoughtful reasons in a timely way, and did you think about the following buyers? Or, “Hey, this is a little bit nontraditional for us, but here’s an introduction to a person that I think would be a great fit, who’s pursuing entrepreneurship through acquisition,” or something like that.
Neal McNamara: Yeah.
Grant Marcks: And so, just taking that and compounding it, right? Doing that consistently every time, hopefully, over time will mean that people think highly enough of us to give us an early call, talk to us kind of before a business is getting ready to go to market, and build the credibility and the relationships in the market to have a right to win them when the time is right.
Neal McNamara: Yeah, I guess the… an analogy in our business is when a client comes to us with a need that we aren’t the right ones to serve, and you can just say, “No, that’s not us.”
Grant Marcks: Yeah.
Neal McNamara: Or you could say, “Yeah, I don’t think that’s our wheelhouse, but here are three other potential firms that we know do good work in this space. Do you want me to put you in contact with them?” Right? I mean, those are really diametrically opposite responses there, and yeah.
Grant Marcks: The other analogy that I think about is the sales cycle one, which is that we are not buying a business from every investment bank every year. They are not selling a business for Riverside every year, although we’ve got a big portfolio and everyone takes that and it’s like, “We think we should be.” But so there can be years and years and years where we have droughts of acquiring between investment banks, or representing us on the sell side. We are now clients of, or—
Neal McNamara: That’ll be a, that’ll be a good long-term story for us to—
Grant Marcks: Yeah, that’s, I mean, that’s a perfect kind of long-term nurturing story. It started years ago with the notion that, hey, we are a big, disparate organization. We have a lot of different pockets of capital that we talked about.
Neal McNamara: We’re very difficult to get in with. We do a lot of what you do ourselves.
Grant Marcks: Ourselves. But it was a full finance director team.
Neal McNamara: Right. Yeah. And it was eyes wide open, too. That was, I think—and this is a really good story, I think, for our industry and a really good demonstration of how hard it is. And I think we should come back to it, too, ’cause I’d like to understand, I’d like to hear on average, for you, in your role on the origination side, how many years on average is it from the initial meeting with a founder-led business to actually transacting on… and granted, there’s only 1%, but just when you do do it—
Grant Marcks: Yeah.
Neal McNamara: —it’s years, right?
Grant Marcks: It can be.
Neal McNamara: Yeah.
Grant Marcks: I mean, there are examples of it taking five, six, seven, eight years of staying with a business and a business owner. If you really like and want to work with, whether it be an individual or you like their concept or their business or their franchise or whatever it may be, it can take patience. And it can take time to meet that owner or seller where they’re at that moment and say, “Okay, now is not the right time, but I’m also politely not going to leave you alone for the next five to six years.” But do that in a way that is, again, palatable to them, meet them where they are, however you want to phrase it.
Neal McNamara: Bringing value, establishing your own credibility. Build a relationship, right? I mean, that’s what it really comes to, you know, you want to build a relationship with that founder.
Grant Marcks: Correct.
Neal McNamara So that he looks at you when he looks at Riverside and thinks, “This is the company that I want to partner with when I’m ready to do this.”
Grant Marcks: Yeah.
Neal McNamara: And again, so very similar to our client story with Riverside, where you’re like, “Okay guys, five years…”
Grant Marcks: Yeah, five or six, yeah.
Neal McNamara: Like, yes, we have a ton of portfolio companies, so on paper there should be a tremendous amount of opportunity for a firm like yours. But it’s going to be really hard because of these factors. But, and you said it, like, if you keep at it, eventually you will get in.
Grant Marcks: Yep.
Neal McNamara: And if you do good work, you will then get streams of work—
Grant Marcks: More and more calls.
Neal McNamara: And yeah, and so five years later we finally got… I think we had like maybe one or two opportunities in iterations along the way, yeah, and like anything, right? You never win the first proposal. Or if you do, it’s awesome, but a lot of times that first proposal’s not the one you win, and so you establish some credibility through proposing and that process, you build more relationships with buyers going through the proposal process, and then you get another one, and then we finally hit one, and then we knocked it out of the park on that project. And then, I don’t know if you know this, but then literally last week we get a phone call and it was, “Hey, we need you to start tomorrow on something.”
Grant Marcks: Yeah. That is actually breaking news to me on this podcast. But yeah, that’s great. I’m not shocked in any way to hear that, but—
Neal McNamara: Well, ’cause you told us that’s how it worked, right? You finally get referred, do good work on this, and then now you’re in the flywheel, and now you’re a trusted advisor and we’re just going. Then it was like, “Hey, I need you guys to start tomorrow on something.” And it was like—
Grant Marcks: Yeah, that’s the big part of it, too, is just like intellectual honesty, right? And there are times when you have to withhold certain truths in this business, but flat-out lying to people is not going to win you any friends. No. It’s not going to throw any favor at all, and it’s—
Neal McNamara: There’s never a good reason for that, yeah.
Grant Marcks: It’s only going to lead to people being upset with you.
Neal McNamara: Yeah.
Grant Marcks: And the other philosophy is related. I just want to be able to walk into a room and have people be like, “That is a person that I like and trust and want to work with,” right? And, you know, I don’t want dozens of people looking in the room and being like, “Ah, that guy screwed me over on that deal.” And so I think that’s part of my people-pleasing personality, but it’s also part of what I think does well in this world is when you can have the credibility and trust and authenticity of relationships.
Neal McNamara: Those things together are so important. Right? ‘Cause you can have the likability, but if you don’t have the credibility… like, I’ve known a lot of BD guys, even gals, over the years that were likable. People like them. People will let them take them to play golf. They’ll let them buy them drinks. They’ll take a meeting with them. They won’t give them any work because they might like the person, but they don’t have professional respect for either them or the organization that they’re representing, right? ‘Cause a lot of times, that person may not be responsible for the actual execution of the work. And that’s why in our industry, I feel like the seller-doers are still the most valuable because you’ve got both.
If you’re good at the doing, you establish that credibility. And then if you have that likability and genuineness of really wanting to establish a relationship, not just in the door trying to sell you work, and trying to earn trust, gain trust, build a relationship and have somebody like you, want to be able to spend time with you, want to then work with you. All those things really have to come together for you ’cause if you’re missing one of them, it’s just not going to… it’s not—
Grant Marcks: Well, that is a difference between our businesses, right? Riverside is functionally kind of specialized, and we’ve got origination, and we’ll sit with deals for a little bit. But at the end of the day, very, very rarely, if ever, are we sitting on the board. We’re not leading the transaction diligence and execution to close. Our philosophy is that sometimes the people who are best at that are not necessarily best at the selling part of our job. So I’m curious, like, how do you find that in your industry? ‘Cause it is heavily a seller-doer model.
Neal McNamara: It is.
Grant Marcks: And is what I said true of consultants? Do some people thrive in certain situations better than others?
Neal McNamara: 100%. 100%. And the way I look at it—and this would be interesting in how you would think about this in what you’re doing—I break apart kind of the business development lanes and in getting work over the finish line or getting actual new projects in the door. So there’s, and I think this is where maybe you’ll sit, right? There’s sourcing.
Grant Marcks: Yep.
Neal McNamara: Right? So the people that are good at sourcing may not be as good at closing. So I think of sourcing and closing. Sourcing is normally at an individual level. Closing’s normally a team sport.
Grant Marcks: Yeah.
Neal McNamara: And so I think, again, depending on how—
Grant Marcks: Is closing proposing and having that proposal be accepted?
Neal McNamara: Yeah, exactly. It’s closed when the engagement letter is signed. So the way we go about it is that in many cases, depending on what the project is, you normally need a technical expert, somebody that’s really good at doing that in the room, convincing the prospective client that we do this really well. Okay. And that’s normally not the same person that’s sourcing the work. And a lot of times, the people that are really good at executing the work and really good at articulating how they execute the work and getting the client comfortable—they do it really well—aren’t any good at sourcing.
Grant Marcks: Yeah. Yeah.
Neal McNamara: Total unicorn that can—I mean, a real unicorn on a team that can do all of it. And so I look at it as a team sport, where you’ve got to have people involved that are doing all of it, and rarely can one person. So I don’t know, I guess—
Grant Marcks: We are helping keep the top of the funnel as full as we possibly can. We are doing that at its best when we are locking arms with the deal partner VPs who are really convicted around either a specific business or an industry, a vertical, and like, “Hey, we are gonna build an outsourced accounting services platform,” or whatever it may be. And when you can marry good-quality, relationship-driven sourcing with really high-conviction execution, we can get lots of deals done. Yeah.
And so, we’re trying each year to really impress upon our own team, and by extension, like, the broader Riverside, that’s the way that we can get the best deals done, deals in the best set of circumstances, hopefully off-market if possible. But even when we have to compete to win, right, the knowledge that we’ve got a thesis, a real strong conviction, and we’ve built a relationship hopefully with that owner or seller pre-process, prior to having a bank engaged. So that’s when it goes well. And that’s kind of the story of, you know… sale process to us, right?
Neal McNamara: Yeah. And that is a very, I would say, typical. And even the duration, it easily can be years to get in. I think the only other—
Grant Marcks: We hope it’s not, to be clear, but—
Neal McNamara: Yeah. Well, of course. We love it when it’s not. I mean, we really, really appreciate it when it’s not.
Grant Marcks: Yes.
Neal McNamara: Yeah. But we also understand that the ones that take months, there’s a hell of a lot of luck involved. That’s just the reality.
Grant Marcks: Right moment, right time.
Neal McNamara: Right place, right time. Yeah. And so it normally is an investment of years and relationships. Because what we’re doing, again, we’re also not doing commoditized services.
Grant Marcks: Right.
Neal McNamara: I think commoditized services can be quicker because there’s not as much risk in engaging a new firm to do this commodity thing. We’re doing much more complex, much more value-add, but expensive.
Grant Marcks: Yeah.
Neal McNamara: We’re a very expensive firm. So it’s like you’ve got to build a lot of credibility to justify our rate card.
Grant Marcks: Well, you get what you pay for, right?
Neal McNamara: You do. You do. Yeah. But again, we are on the top—we are at the top end of that. And you’ll appreciate this, we did just get a new project with a new fund, literally a fund we didn’t know existed two months ago, which is like this golden thing that comes in. But in the negotiations, the principal was like, “Listen, Neal, I hear you on why your rate card is so high. It’s ’cause you guys are so great. I’m going to need you, because I’ve never engaged you before, I’m going to need you to prove that on one. So I need a bit of a discount on this first one to prove maybe how great you are.”
Grant Marcks: Yeah.
Neal McNamara: “And then I won’t bust your chops on the next rate card, but you’re going to have to prove it.” It’s fair. Yeah. Fair that I accept that, yep, you need to see it in action, and then you’ll recognize it, and we’ll get back up to where we should be.
Grant Marcks: Well, as you were describing selling to another private equity firm, it occurred to me that the reason, in part, that we connected was like this world is so small. We had some mutual connections through a Chicago firm that I have a good friend at. And like, so back to the reputation thing that I was thinking about, right? That was one very quick, easy phone call for me to be like, “Hey, tell me about—”
Neal McNamara: “What do you know about this guy?”
Grant Marcks: Yeah. “Can you help me understand what exactly they are doing for your portfolio companies, at what time and inflection points?” And that was really valuable. And so leaving good references is another big part of our philosophy at Riverside. It’s actually plastered all over the walls and stuff. “Leave good references in your wake” is one of the number one kind of goals for our firm.
Neal McNamara: That makes sense. That makes sense. Yeah. I didn’t think about that as much from your perspective.
Grant Marcks: Yeah, it’s huge for us because—
Neal McNamara: In any B2B sales role, really, you’re only as good as your last project or sale or whatever. And you better have client advocates. ‘Cause if you don’t, if you can’t list off three or four funds off the tip of your tongue right there when somebody asks—
Grant Marcks: Oh, that’s table stakes.
Neal McNamara: “Who do you work for that will take the call, that you’ve done something like this for, that will pick up the phone and take the time and sing your praises to me tomorrow?”
Grant Marcks: But the other part of it that I was kind of alluding to is, because this world is relatively small, it can’t just be the five that you put on a reference card. It has to be the fact that I can sub rosa call really anyone that you’ve worked with before.
Neal McNamara: Yeah.
Grant Marcks: And they have to also be your advocates and have a positive story to tell.
Neal McNamara: Yeah, so it’d be the same for you with founders.
Grant Marcks: Correct.
Neal McNamara: Right?
Grant Marcks: Well, investment banker, I mean, any sort, like we also want you saying good things about us. Yes. We want our attorneys, we want our background screening providers, we want every single person in our ecosystem.
Neal McNamara: Not everybody operates like that.
Grant Marcks: I agree with you 100%.
Neal McNamara: That is exactly what you want. That’s exactly what you want. And it also comes… there’s another part of this philosophy which is not as much as business development, just business. Life, actually. There’s no reason to make enemies. It just does you no good. And I’ve had these discussions from, whether it be like enemies within the firm. And I’ve had people discussions in the firm where it’s like, “Listen, I get it. You’re pissed off, maybe rightfully. But what you did when you got that off your chest, you made an enemy in the firm. And did you just make the firm more or less valuable by doing that? And did you benefit at all?” Like, the only thing that you did was you got to blow off steam at the person, and in this whole construct, nobody’s benefited from this situation.
Grant Marcks: Correct.
Neal McNamara: Yeah. So let’s just not do that.
Grant Marcks: It is philosophically something that I wish more people would appreciate and abide by. I think for that reason, at times, like, we have a lot of homegrown talent, what we say at Riverside. So, like, people who have been here since… I’m an extreme case, but like, I started here as an intern.
Neal McNamara: As an intern, yeah.
Grant Marcks: But we have a lot of people who have been here with us for a long, long time. And I think by and large that’s a really positive thing, but I think what that does is it kind of ingrains that part of our culture. And so at times, people who have come in from the outside, particularly at senior levels, haven’t always been a good fit because—this is a shock to you, I’m sure—but private equity isn’t always like the softest-touch industry. There are people who have some pretty sharp elbows and aren’t afraid to speak their mind, and sometimes they aren’t afraid to really let people know. Whether that be mistreating, like, talking down to our service providers. Yeah, that is really a thing that we want to avoid at all costs.
Neal McNamara: It’s unnecessary.
Grant Marcks: Yeah.
Neal McNamara: Have big boy conversations.
Grant Marcks: Right.
Neal McNamara: Right? If It needs to be said. Somebody needs to be held accountable… respectfully. Exactly. Yeah, exactly.
Grant Marcks: Yeah, and with the spirit being like, how can we fix this or how can we make it better?
Neal McNamara: No, that’s… there’s no reason to treat somebody professionally disrespectfully. There’s just no reason to do it. Yeah. And again,, and we all—look, I’ve flown off the handle plenty and whatnot, so we’re all going to make mistakes, but then just acknowledging that it was a mistake. Shouldn’t have been like that, apologize, move on. Again, to our conversation earlier about making enemies. Had an unnamed investment bank that made an enemy of me, which it just… again, it just, it boggles my mind that a firm would speak so disrespectfully to another participant in this industry.
Grant Marcks: Someone who’s ingrained in this ecosystem that we’re… like this flywheel of banker, service provider, private equity company.
Neal McNamara: Yeah, in our industry, like narrowly focused in our industry at the same time. It’s like, why would you… And again, and be given the opportunity to acknowledge, “Well, wow, that person shouldn’t have spoken to you like that and shouldn’t have been—”
Grant Marcks: Yeah.
Neal McNamara: —disrespected you and insinuated that you would do something so unprofessional yourself. So to make the glass half full of this is that it gave me a… it gave me a topic for my next just Neal-talking podcast is going to be how to take a potential client and make them an enemy.
Grant Marcks: Make them an enemy. Yeah, exactly.
Neal McNamara: So, I’m going to have a lot of fun. Again, I’m just going to like, this is your Spider-Man origin story. You know what I mean? Oh, yeah, so it’s g—it’s good to get content, I guess, right? I got to keep the flywheel going of, if I’m going to release one of these every other week, I got to have some engaging stuff. A lot, yeah. And with the Uncensored title, that one will definitely have profanity. I was even thinking about having, putting profanity in the title.
Grant Marcks: Yeah, yeah.
Neal McNamara: So, exactly. Yeah, here’s my response to this. So yeah, we’re going to… we’re going to have some fun.
Grant Marcks: Yeah.
Neal McNamara: We’re going to have some fun. Yeah, we’re going to have some fun with that, so… But just to round out what we were talking about, ’cause I was thinking about the, again, the different roles in business development in our organization, and I think the other thing that is important to us… and again, I’d be interested in how this, how you analogize this with what you’re doing, is that there’s that technical expert that does the work really well, and in the sales process convinces a client that we do this, or he or she does this really well and we’re the team that they should engage.
The other thing that, one of my quips in our business, say all the time is like, “The best way to get more work is to do great work.”
Grant Marcks: Great work. Yeah.
Neal McNamara: Like, it’s the antithesis to the cross in our industry—cross-selling and introducing other people from other parts of the firm and other things that we do. And I’ve had this where I’ve had… we’ve been doing a pure-play Office of CFO engagement, and somebody that’s more focused on integration management and that more of operational piece of what we bring to clients…
Grant Marcks: Yep.
Neal McNamara: It’s like, “Hey, I need to be, hey, that person needs to bring me out and introduce me and whatnot.” I was like, “Nope.”
Grant Marcks: Nope.
Neal McNamara: “No, what that person needs to do—”
Grant Marcks: Not required.
Neal McNamara: Just needs to hit a home run on this engagement, and that person needs to be not distracted with anything other than doing great work, again, for the next six to eight weeks. Like, not next year. But it’s like if that person doesn’t do great work, we’re not going to get any more work anyway, so it doesn’t matter. They don’t need to come and introduce. So do this project, knock it out of the park, then we can have the broader conversation after building credibility and respect and whatnot. And the reality is, if that person does great work in those six to eight weeks, they’re probably going to be asked to stay long, and then we’ll be, again, we’ll have the market permission to come out and talk about that and then talk about other ways that, that we can help. But right now, just cut it. Because that’s the big firm mentality is like, “Okay, well now we’re in there, and so we got to cross-sell and bring the tax person and the post-merger integration person whatnot…” No. Why? No, let’s just focus.
Grant Marcks: Yeah, yeah. The best corollary that I can think about is we’re… so we are pretty well entrenched in the franchise ecosystem as a firm. I think it’s a pretty great analogy because there’s 4,000, give or take, franchisors. That’s like our universe of what we are interested in partnering with, acquiring, et cetera. There’s probably about 4,000 private equity firms—
Neal McNamara: There are.
Grant Marcks: —selling.
Neal McNamara: Just in the middle market.
Grant Marcks: Exactly.
Neal McNamara: —that’s pretty much the number.
Grant Marcks: Yeah.
Neal McNamara: About 5,000.
Grant Marcks: And we’ve done 65 deals in the last 20 years in franchising. When we get a franchisor deal across the finish line, my mentality is that should be a reference point for others. And if we’ve been doing this successfully for 20 years, back to the earlier point, we want to have another 20 years. But you’re only as good as your last deal, and you’re only as good as whatever that business owner is going to tell the market.
The ecosystem being so small means that, first of all, every franchisor files an FDD and has a lawyer. So, the franchise lawyers are heavily involved in advising these folks. There’s a set of accountants that are really specifically focused around the franchising industry. There are service providers that help you sell franchises. So, there’s an ecosystem around that 4,000. Any one bad apple can spoil that whole bunch at any given time, really. So, the same thing that you were saying about wanting to do that good work.
Neal McNamara: Yeah.
Grant Marcks: Like we want to get that deal. We want to get it closed. We also want that owner saying good things after the deal has closed. They’re becoming, for the most part, they’re folding into one of our platforms. And they’re becoming a part of our Riverside ecosystem and organization, and we want them saying good things if they’re here for five years, five months, 10 years, however long their career trajectory is going to take them along the Riverside path.
And so, I’m always really focused on, “Hey, let’s get good deals done, and then let’s make sure that we are helping those businesses grow better, faster, more efficiently, and make sure that we’re creating a network of evangelists that go back to that small little ecosystem and say, ‘Hey, we really like working with Riverside.'” And Riverside’s only one of maybe a couple of dozen folks that are really dedicated to doing franchising deals. So, we just need to keep that flywheel really moving, and we need to keep people excited about partnering with us.
Neal McNamara: Makes sense. So maybe we can move on to the other topic that I wanted to cover. What I love being able to do is bring on guys like you, representatives from a firm like Riverside, and talk about investing in our industry.
Grant Marcks: Yeah. Right.
Neal McNamara: I got this idea from all the… we had, where you and I have spent some time at some of these conferences specific to our industry where an investment bank will bring us together and we’ll sit, and I have 12 to 15 30-minute conversations with investors in our space just talking about the industry. I was like, I love those conversations. They’re engaging. I feel like the broader participants in our industry will find those interesting as well, and it’s a hugely dynamic environment of investing and what private equity in our space broadly—
Grant Marcks: Yeah, absolutely.
Neal McNamara: —has dramatically changed over just the last two years.
Grant Marcks: Yep.
Neal McNamara: So, I’d like to hear, maybe we could talk a bit about, again, kind of your thesis in consulting broadly. And then what, you know, for what you’re look—what you would be looking for, like when you go to these conferences and you’re meeting with other founders like me. What are factors that get you more or less excited about a specific firm and the opportunity that firm has in the market?
Grant Marcks: Yeah. Well, the professional services industry as a whole has attracted a ton of private equity attention in the last couple years, whether it’s accounting services, now law firms—
Neal McNamara: Law firms.
Grant Marcks: —are the next, the next frontier, certainly CFO and other kind of professional services. So, and the reason for that is, is pretty simple when you boil it down: big market, big TAM, lots of players. So, consolidatable industry. And generally pretty well diversified if they’re providing good services that are differentiated. What we really look for is that part of it, right? So, are you providing a service that is unique, cannot be provided? Whether that’s a higher-quality service, could be at a higher price point, within a particular niche or a vertical that is really specific, whether that be highly regulated or something that requires certification, or something that is like… there’s a fundamental factor that is underpinning the demand driver for that service. And then, the other part of the reason that I think private equity’s attracted to this is because we understand it. We’re customers of it, right?
Neal McNamara: Yes.
Grant Marcks: We know it. We implement it at our portfolio companies. We—
Neal McNamara: Easy to wrap your hand around. Or wrap your head around, y—you know how these businesses operate, how they make money. How they could do it better.
Grant Marcks: And then the last component is a lot of the founder-led businesses that we tend to work with, it’s… you have to use Vertus as an example. I don’t know that this is true of your firm, but you probably wear a bunch of hats as a founder.
Neal McNamara: Mm-hmm.
Grant Marcks: And so what are the ways that we can help mitigate some of that, you know? Best use your time, bring in the professionalization opportunity, bring in the technology enablement in today’s world to help you quote faster—
Neal McNamara: That’s a topic.
Grant Marcks: —more accurately, and bring better service to your clients at a better margin to you. So, and then what else can we add to the pie? Or what other components do you… if you had them as part of your menu of services, would you sell to your clients that you don’t have today? Should we buy it? Should we build it?
Neal McNamara: Broadly speaking, are you a big buy-and-build fan?
Grant Marcks: Yes, done right and in the right industries. We’ve done a lot of consolidation within the fire and life safety industry.
Neal McNamara: Okay.
Grant Marcks: And another massive TAM, you know, nine, $12 billion market. Sorry, much bigger, but we’ll have 9,000 players in that industry. There’s room enough for 45 different private equity-backed platforms at this point in that market.
Neal McNamara: Wow.
Grant Marcks: It’s probably even more than that. And a huge opportunity to professionalize, route-optimize. The thing that we did really well with those platforms—that one we still own and two we exited—was really driving the recurring, service-oriented mix. So, changing the revenue profile of the businesses to be as attractive, as recurring, as sticky as we possibly could. Obviously, driving organic growth was a big part of it, but we acquired a lot of businesses along that path.
And it worked well because we were willing to start small, we were willing to do a lot of small deals efficiently. The model really worked there. There are other businesses that we own where we say, “Hey, we’ve bought a nice platform here.” We think there’s three or four core competitors that we can consolidate that do the exact same thing, and we’re buying, whether you call it acqui-hiring or buying a book of business or whatever, we’re buying—
Neal McNamara: I like those.
Grant Marcks: Yeah, these are great.
Neal McNamara: Those are great.
Grant Marcks: Those are highly accretive.
Neal McNamara: Yeah.
Grant Marcks: But there’s, maybe there’s not an endless universe of those.
Neal McNamara: Yeah, there’s some.
Grant Marcks: But at the end of the day, we’re going to need to diversify this business as well. So, we’re going to add labor law posters, we’re going to add I-9 compliance, we’re going to add e-verification. We were going to add components to it, and some of those things that we’ve added, we’ve bought, and some of those things we’ve built. And there just was an inflection point where we said, “Hey, what’s out there? What can we buy?”
Neal McNamara: Yeah.
Grant Marcks: You can’t buy everything that you want to buy.
Neal McNamara: Right.
Grant Marcks: And so, it’s a function of what’s available, but also, what is the cost of that relative to the cost of building it organically?
Neal McNamara: Right, and how long does it take? The hold period. How much patience do we have with the organic?
Grant Marcks: Exactly. Correct.
Neal McNamara: Organic’s always slower.
Grant Marcks: It is.
Neal McNamara: Right? But it’s less, normally stronger.
Grant Marcks: Yeah. Yeah, ’cause and are there things that you can do to build that conviction over time, right? Whether that’s, we did a really fulsome customer survey. What are the services that you are buying that, so for our core customer, what are the services that you are buying today, and what would you buy from us if we offered it? And we did that survey, and—
Neal McNamara: I like that.
Grant Marcks: We basically just followed the bar chart of this is what we’re going to try to pursue.
Neal McNamara: Sure.
Grant Marcks: And we’re going to build some of it, and we bought some of it.
Neal McNamara: That makes sense. That reminds me of how we got into quality of earnings. It it was a much more unofficial survey. Yeah. But it was basically enough clients asked us to do it.
Grant Marcks: Yeah, exactly.
Neal McNamara: Yeah. There was like, ’cause I was dead set against, ’cause it is in what we do, it’s the most commoditized thing that we do. It’s very, to your point, on like differentiation, it’s so tough to really differentiate in the quality of earnings world. But I simply had too many clients say, “Well, with all this post-close and Office of CFO support work that you do, it’d be great if I could hire you to also do the quality of earnings on the front end of these investments.” Okay. And I get told that enough.
Grant Marcks: Yes.
Neal McNamara: It’s like, all right, I guess I will. Yes, we will add that. We’ll grow that organically, bring on people to, to do that. But that’s kind of, that’s the approach I’ve taken on some of the doing additional things has been more in response to the market telling us that it would be great if we would do it, or you just get enough of these, “Hey, do you do this?” Or I’ve got a, you know, and you ay no enough times, you’re like, “Well, maybe we should.”
Grant Marcks: Right.
Neal McNamara: Yeah. And we’ve got some right now that we’re actually debating because we do get asked a lot of times, but do we really want to be in that?
Grant Marcks: Yeah. That survey example is not necessarily indicative of everything that we would do.
Neal McNamara: Right.
Grant Marcks: Some of the things that were, at the top of the list, like, we just wouldn’t do.
Neal McNamara: Just that you guys don’t want to.
Grant Marcks: We are not going to do background screening because we don’t want to compete against First Advantage. It is a more of a , to use your example, it’s more of a commodity service, and we just didn’t want to be in that business. So, yeah, we didn’t take it as gospel like, “Yeah, this is what we must do and build.”
Neal McNamara: That’s like for ours of like staff augmentation. That’s a really good one. It’s, it’s just, it’s not… it, there’s revenue there. There’s lots of revenue there, actually. Right. But it’s tough to quality control. It’s a different business. And, I’d be interested in your perspective of this too of, to narrow in on our industry, Office of CFO. I think it’s funny that, and I think I say this in one of my podcasts that’s going to be released soon on, oh, yeah, I did an update after going to one of the Clearsight conferences.
Grant Marcks: Yeah, yeah.
Neal McNamara: And it’s, “Hey, here’s, here are like five things I took away from it.” And one of them was every, because Office of CFO multiples have gotten a little out of control, every business that touches anything in accounting and finance has rebranded themselves an Office of CFO firm.
Grant Marcks: Yeah.
Neal McNamara: Everybody. Go, you just do a fun Google search. Or just, just or just go to every one of these accounting services companies and go to their website and see how they’ve rebranded themselves.
Grant Marcks: Yes.
Neal McNamara: Recruiting firms. Yeah. Really, like just pure recruiting firms, have called themselves office. Guys, it’s not that easy. You don’t get to just rebrand as Office of CFO, now you’re going to get a 15—
Grant Marcks: It’s funny. We do a lot of software investing, right? And in vertical software right now, there’s trends in two ways. You see people all of a sudden changing their URL to .ai, or you see people going the other way, where they’re like, “Oh, we’re actually more tech-enabled business service with a, you know, AI-based software underpinning,” or whatever.
Neal McNamara: Yeah. Yeah, the AI one’s, that’s the other one. Yeah, one of my competitors is now “AI-powered” in their tagline.
Grant Marcks: Yeah. Whatever. Whatever that means.
Neal McNamara: Like, really?
Grant Marcks: But you don’t have to explain it. It’s just a marketing thing.
Neal McNamara: Yeah, that, that’s a whole nother rabbit hole we could go down on getting into the AI. You cut out to multiples, though, so what drives you guys to pay a market leading premium? Or like, what, what factors do you look at and say, “I will go and compete for this asset and I will pay, I’ll pay top dollar for this consulting business.” What are the factors that get you there?
Grant Marcks: Growth, recurrence, retention, really said another way in this world, and specialization. Okay. Like, a marriage of those three things. Plus, hey, we are platform-worthy, meaning we’ve got, we’ve already built some of that scale and infrastructure and we’ve got real professionalization around technology, finance, recruiting all the things that you would build if you were selling a middle-market, upper-middle-market platform. You’re a billion-dollar platform. If you have built some of that infrastructure along the way that’s what is going to make private equity lean in and pay a little bit more.
Neal McNamara: And when you say growth, what does that look like on the, I guess, the historical side, and then kind of the, the go-forward? How does, how does that how do you like to see that track?
Grant Marcks: Yeah, There’s nothing prescriptive about it. Yeah. The way that the market grows is one way to measure it. Typically, we are looking for, and if you just look at general private equity LBO math today with the cost of capital, like you need to really see, to like to pay a multiple for a platform, you need to see corresponding, like, at least double-digit growth into your hold period. Yeah. And the best indicator of what you’re going to do in the future is what you’ve done.
Neal McNamara: What you’ve done in the past.
Grant Marcks: So, this is not, yeah, like rocket science.
Neal McNamara: Mm-hmm.
Grant Marcks: But the other thing that I’ll say is, in any business’ evolution as they grow and scale and get bigger and bigger, the harder it is to grow. When you’re starting with smaller platforms, we tend to want to see even bigger growth than that, you know, 10, 12% that we might be underwriting as a firm.And obviously, every single model that we’ve ever put together is exactly accurate, and that’s how we show the—
Neal McNamara: It’s always played out that way.
Grant Marcks: Yeah. It’s that we’ve never missed a budget in any, yeah, company
Neal McNamara: That, that reminds me of another services investor who’s a client of ours, that are talking to them about, they did a bunch of inorganic in one of their platforms, and they’re like, “According to our models, we’ve acquired 20 million of EBITDA. It’s like we are below 20 million of EBITDA…”
They’re like, “Yeah, I’m sure we got some of that wrong, but I think there’s some of this hasn’t been executed.” So, it’s like, sure, it’s somewhere in between the models are wrong and the execution fell down, so can you help us bridge some of this? I was like, “Ooh, that’s, yeah, that’s a bad fact pattern.”
Grant Marcks: Yeah.
Neal McNamara: Yeah, that, that’s exactly. I was like, “I can see why you need some help here, so—” I think there’s, I’m sure there’s something we can do. I’m sure it wasn’t just the models were off.
Grant Marcks: Yeah, exactly. Exactly.
Neal McNamara: On all of these. Oh, yeah. Well, good. AThose are the core topics I wanted to get to. Anything else you’d want to chat about or leave us with?
Grant Marcks: No. We continue to be active in, in your space, grateful clients of yours, so yeah, all good.
Neal McNamara: Excellent. Well, thanks for the time.
Grant Marcks: Thank you.
Neal McNamara: And I know you got to get to some other sourcing.
Grant Marcks: Talks this afternoon. Yeah.
Neal McNamara: Yeah. Excellent.
Grant Marcks: Thank you.
And that’s it for this episode of Consulting Uncensored with Neal McNamara.
Want to join the conversation? Connect with Neal on LinkedIn to share your thoughts on today’s episode and join a community of consulting professionals who want to cut through the BS. Thanks for listening. There’s a new episode every other Wednesday.
We’ll see you then.