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Co-founded in 2007 by former San Francisco 49ers quarterback Steve Young, HGGC is a Palo Alto, Calif.-based middle-market private equity firm with around $7 billion in cumulative commitments across about 30 portfolio companies spanning the consumer, business services, technology, and financial services sectors.
The firm generally prefers to make majority investments in businesses alongside management and other investors, provide the resources to execute on a growth plan developed during the investment negotiations, while leaving day-to-day execution of the plan to the in-house leadership team.
But HGGC’s interest in the highly fragmented independent wealth management space led the firm down a different path: The firm allocated $300 million from a fund launched last year to create a holding company—Aspire Holdings— to make quicker, smaller, strategic investments in registered investment advisory firms.
“There are still a lot of very small businesses,” said HGGC President Neil White. “It can be difficult to find targets that are large enough to satisfy the investment size that we’re looking to make, so we set up a holding company to allow us to be a little bit more flexible and creative in the type, size and nature of the investments that we make. It also allows us to pool some resources across the different investments and keep continuity across our team that works on these investments.”
That may eventually lead to natural opportunities to bring incremental services to their portfolio of RIAs, or even build out a support platform for independents, White said, but there are no such plans in the immediate future. For now, the investors continue to look for opportunities.
Through HGGC’s Fund IV, the firm currently owns pieces of Merit Financial Advisors, Waverly Advisors and Apella Capital—all of which are held in partnership with Wealth Partners Capital Group.
“Their value-add and expertise is tremendous, and they’ve been great partners to us. We hope and feel that we’ve reciprocated and would invest with them again, but neither of us have any obligation to invest with each other,” White said. “We’d be delighted to invest with other financial sponsors as well.”
The principals of the acquired firms are expected to reinvest in the firm alongside HGGC, and work with HGGC’s representatives to achieve benchmarked goals.
“The first thing we do is look for management teams or founders that either own or lead these businesses,” said White. “The starting point for us is always about the people. And together we identify a vision for the future and the things that need to happen make that vision a reality. Working backwards from that, we put together a plan to help them get there, both organically and inorganically—and then we get to work making it happen.”
HGGC funds have 10-year lifespans, but investment timelines tend to range from three to seven years, and predetermined penalties—financial or otherwise—are typically involved when benchmarks are not met.
“We always invest alongside others,” explained White. “So, if we’re not meeting our targets, everyone is collectively unhappy. And, depending on the nature of the miss, you take remedial steps and then build a plan to fix it.”
In every situation, he said, there are opportunities for improvement, whether that involves changes the management team can make or things HGGC can do differently.
“If I were able to speak to every seller out there, I would hope they would appreciate how much we’re willing to listen and how much we’re willing to learn and be flexible with them,” said White. “I think sometimes there can be a perception that private equity can be heavy handed or difficult, but certainly our approach is collaborative and based on mutual goal setting. That doesn’t mean we’re not demanding of ourselves and those we’re working with, of course—we all have high expectations—but we have found our interactions with sellers to be very, very positive.”
With billions of dollars invested, PE firms are driving the industry’s rapid consolidation. Here are some of the most active participants:
Thomas H. Lee Partners – The Active Operators
Lightyear Capital – The Domain Experts
Genstar – The Majority Partner
Bain – The Structured Dealmaker
Stone Point Capital – More Opportunities Than Capital
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