Grace Lynn Keller (00:00):
This is Grace Lynn Keller with the Becker's Private Equity Podcast. Today, I'm excited to be joined by Raj Kothari who serves as the Managing Director of Cascade Partners. Raj is an entrepreneur, a financial advisor, an investor, and more. So, Raj, thank you so much for joining me today. Can you please take a moment and introduce yourself?
Raj Kothari (00:20):
Grace, thanks for having me on today. As you said, my name is Raj Kothari. I'm a Founder and Managing Director here at Cascade Partners. We're an investment bank and a private investment firm based in Detroit with an office in Southfield, Michigan, as well as Cleveland, Ohio. So I've been doing this work for a long time. I've been an active investor in the public and private markets my whole professional career, and been involved in M&A and private equity for the last 25 years across a variety of industries, but with a lot of emphasis and focus on the healthcare sector.
Grace Lynn Keller (01:01):
Well, that's awesome. It sounds like you have a ton of experience. I'm really excited to get to know you better today. So first off, can you tell us what you're seeing in the deal market today, or if there's any areas you specialize in and all that?
Raj Kothari (01:14):
Sure. I mean, I think as everybody's seeing a very robust and active M&A market. While there was quite a lull at the beginning of last year because of the COVID as the markets opened up and people started figuring out how to operate in this new world, you saw activity picking up dramatically. We saw that as well. We had a crazy fourth quarter getting deals, get it closed. And probably one of our strongest pipelines and book of business as we're going into Q1, I think that's a combination of a lot of capital available in the marketplace, both from the private equity and other investors that are actively looking at private companies, as well as a pretty significant overhang in the debt market. So when you've got interest rates as low as they are, and an abundance of capital, there's a lot of buyers and there's a lot of sellers, or organizations, that are saying, "You know, maybe it's time for me to transition. I'm tired. This is a good value."
Raj Kothari (02:14):
And now with a forecast looking like a potential increase in capital gains tax, I think it's going to only accelerate people's decisions in terms of looking at liquidity, generating an exit or otherwise recapitalizing their business. And we've been doing that across a lot of different segments of the market. We're a lower middle market focused bank, but we've been seeing a lot of activity in healthcare, particularly in physician practices. Our industrial practice is really active across several segments, manufacturing, distribution. And so, those are two of the areas that we've seen a lot of activity. An amazing amount of activity in the retail sector. That's something that we would have predicted, but we've got two deals actively right now, one on the e-commerce and one of the big box retailer that honestly had their best years ever in 2020, and got a ton of interest in those opportunities. So we're excited.
Grace Lynn Keller (03:18):
Absolutely. And what percent of your deals roughly are private equity driven?
Raj Kothari (03:25):
Well, I don't know any of them are ever, excuse me, any of them are private equity driven. We really focused on understanding the goals and needs of the organizations, and sometimes private equity is a fantastic selection and other times it's strategic or something different. So, I don't know that they're ever driven until we kind of dig in and figure out what the real objectives are. But in the end probably 60%, 50% of our deals are going to private equities, the balance going to strategics. We just completed a buy-side transaction in the telecommunication sector that was obviously strategic to strategic. So I would say probably 50 to 60% private equity is ending up being the partner or a partner in the transaction. Sometimes they're just providing some of the capital as you've seen a huge growth in minority and alternative debt private equity funds, supporting transactions, and our clients have been the beneficiaries of some of that flexibility and new capital opportunities.
Grace Lynn Keller (04:36):
Yeah, yeah, absolutely. So switching gears a little bit, do you have any top priorities moving into the new year?
Raj Kothari (04:45):
Well, as we look at 2021, it's continuing to capitalize on what is growing interest for both buyers and sellers interestingly enough. We continue to focus a lot of our work on the physician practice market. It's been an area that we've had a lot of success and I think helped move the needle for organizations, but we've been blessed with a fair amount of success and interest in our work. So we continue to grow and expand our team. And as I think we look at 2021, we're trying to find ways to be more relevant to a broader market opportunity and strengthen our deal execution team, given the volume and activity that we're seeing in the marketplace from different clients that are looking to either capitalize on their success or build on their success through acquisitions. So we're really working to intensify the strength of our execution team and the reach and just it's going to be an awesome, I think 2021 is going to be an awesome year for the M&A world. And we're just trying to position it to be a good resource and take advantage of it.
Grace Lynn Keller (06:02):
Yeah, that definitely sounds great. I wish you guys great success with that. So you mentioned in your introduction that you have years and years of experience in this space, can you talk a little bit about your career journey and how you got started in private equity and with Cascade?
Raj Kothari (06:19):
Sure. I had come from a very circuitous route. I don't have the traditional background experience that I think for investment bankers and private equity folks. I actually started out as a money manager, and was an investor from a very young age in the public markets, and ran pension fund money for Masco Corporation. And then did my first startup with an organization doing money management. And it was a lot of fun, but I didn't know a lot about picking partners. And I've always been a long-term investor and got exposed and introduced to private equity, and had the opportunity to join a small firm that was raising a new fund and wanted somebody with some strong investment experience. I didn't have any transaction experience and they were an investment bank and it took us a couple of years to raise that fund.
Raj Kothari (07:15):
So I learned investment banking baptism by fire, and it was actually a fantastic experience because I already had the investment mindset and then I learned how to put deals together and how deals work. And so when we raised the fund and our first fund was an SBIC healthcare focused fund. And so that was really my first big exposure to the healthcare sector other than M&A transactions and really enjoyed that and learned a lot when I was doing both M&A and private equity. And then started my second startup, a firm called Seneca Partners. I started about 20 years ago doing the exact same thing, M&A, and we had a healthcare focused venture fund, again, focused on the middle market, investing in healthcare companies. And within that entity, we invested in a lot of different companies, it was much more of a merchant bank, while doing in our M&A work.
Raj Kothari (08:11):
So everything from automotive, distressed automotive, heavy truck, to healthcare companies, technology businesses. And like any organization after a period of time, all the partners realized, "Oh, we weren't quite going the same direction." And so we just kind of very amicably broke the band up and that created the formation of Cascade almost eight and a half years ago. My team and I came out and created Cascade. And we've been charging along doing the M&A work with some private investments along the way. But we've really grown and developed the team and the skillset supporting an ever-growing base of and clients and larger scale organizations. For a middle market firm, we did four deals over a hundred million dollars in 2019, one of our best years ever. And we're pretty proud of that.
Raj Kothari (09:09):
We're excited about having an impact on people's lives. That's one of the core values for our organization is having an impact and having an impact on people's lives. That's everything from our team members to the clients that we're working with, helping them get through for what many is their biggest event in their life outside of their family. And we're excited to be a part, and a party, and a partner in that work.
Grace Lynn Keller (09:41):
Well, what a great career you've had. That's just awesome. My last question for you is where can people learn more about you and the work you're doing and Cascade Partners?
Raj Kothari (09:50):
Yeah. Obviously folks can check out our website, which is at cascade-partners.com, but we're also pretty active in LinkedIn. And folks can learn a little bit more about our organization and we're always looking to connect and engage in dialogue and recognizing a big part of this is building strong relationships and the transactions are really just a by-product of great relationships and partnerships.
Grace Lynn Keller (10:16):
All right. Well, Raj, thank you so much for speaking with me today. It's been a pleasure. And thank you for joining me on the Becker's Private Equity Podcast.
Raj Kothari (10:25):
Grace, it was really my pleasure and I appreciated the opportunity to share a little bit about the organization today.