Russ Roenick - Transom Capital Group

[Music] Welcome to Norsthar's Private Equity Fast Pitch. And thank you for joining us on this journey into the high stakes worlds 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. 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 POD FATHER of Private Equity, Jeff and Incin. My guest on this episode is Russ Ronik, co-founder and managing partner of Transome Capital Group, a firm built on operational excellence forged in the fires of 2008. Russ and his team specialize in complex transactions, corporate carbots, divestitures, and special situations, where hands-on execution makes all the difference. Today, we discuss how Transome's integrated deal and operations model works in practice, why pattern recognition drives consistent returns, and how there's six levers of value creation guide every decision. Russ also shares his journey from McKinsey to Microsoft to founding Transome, lessons learned through crisis, and how leadership evolves when you shift from doing everything yourself to empowering others to do it even better. It's an inspiring conversation about resilience, precision, and leading from the front, whether you're in the trenches or the border. Now let's dive in. Russ, I'm very excited about this podcast. We had a fantastic in-person coffee the other day, mostly talking about baseball. This time we get to talk a little bit about business, and if you would, get us kicked off and tell us a little bit about yourself and your firm. I'm happy to continue talking about baseball, but happy to talk business for a couple of minutes here. I am a co-founder and managing director at Transome Capital. We are based here in Los Angeles, and we're a value oriented biopfer. We're looking for businesses that can be off the run. They're businesses that are generally mired in some form of transactional or operational complexity. We're typically trafficking in corporate carve-outs. We talked to lenders about some of the assets that they have in their portfolio, or that may be troubled assets or credits that they're working through and can use a solution. We also spend a lot of time in the public markets looking at companies that are sub-scaled. That probably aren't really fit anymore to be publicly traded and be better served to be on the private side. That's where we spend most of our time these days. All those types of opportunities they come along with some sort of operational need or complexity. We have a very large operations team comprised of ex-CEOs and CFOs. Oftentimes those are people that have worked for us in that capacity. Through our portfolio companies in the past who are working alongside our investment team to build investment DCs and then execute a lot of that operational thesis there after over an, what is mutually three to five year old period. From a size and industry perspective, do you have any lens there that you're focused on outside of the more corporate carve-out type assets owned by large companies or banks? I'd say our sweet spot from a size perspective usually are businesses that have anywhere from, called $20 million deep at the low end, up to $100 million in the high end. We've looked at opportunities and got pretty close on ones that are in excess of that, but I would say that's generally an exception to the rule. Then from an industry standpoint, we're pretty flexible. There are industries that we don't love, like there's some industries like oil and gas, some sub-sectors within healthcare that are subject to deep commodity exposure or stroke and the pen risk. We tend to shy away from those, but generally speaking, we're pretty flexible in terms of the industry we look at. For us, the more important lens is really around the problem that we're trying to solve. The operational challenge or opportunity that the company is facing. If we feel like one or more members of our operations team has a real deep specialty in being able to attack that problem or take advantage of the opportunity, that would get us excited more so than what the underlying industry is. We generally have been able to navigate lots of different challenges in a variety of different industries and always hit our return partners. One of the questions I've started asking recently because I think it's something that many of our audience members don't know, some do. Where does your deal flow come from? How do you source it? And then what are statistics on how many deals you're looking at each year that end up being maybe one or two deals that you close? We see thousands of deals every year, two thousand or more opportunities. Obviously, much, much smaller number are qualified, right? But the top of our funnel is pretty wide. And it's banks, it's brokers. It could be the largest investment banks out there, like Goldman Sachs or Morgan Stanley. In terms of deal flow and size, it could be a single, single operator who has one deal to sell every 18 months. We cast a pretty wide net from that perspective. We also talk directly to corporates. We've talked to lots of lenders. And then we build our own screen when it comes to looking at public deals. And we do a direct approach on those. Very wide, very broad. We try to see a lot, we try to develop a lot of pattern recognition by seeing as much as we do. But we will scour the end of the earth to find something to the criteria. So once something fits your criteria and I would expect it's probably well under 10% that actually make it through the filters. One of the things that you're doing, you mentioned your CEO and CFO operating folks that clearly have expertise in the area. But how are you peeling back the onion if you will to find what the issues are that you can solve and create value from? Our process is a little bit different than others. When we find an opportunity that we think could be interesting. One of our senior M&A deal team leaders partners together with one of our senior operating partners and they essentially co lead a deal. For example, our M&A team, they are going to be focused on building the model, doing the confirmatory diligence, working with a lender to build the cap structure, negotiating all the legal. Our operations team, they're the ones that are going in these businesses and identifying the problems or challenges. Which ones they think our opportunity is to improve performance. They're helping this figure out how much incremental EBITDA. We squeeze out of that business for having solved the problem at hand. How long is it going to take and they're feeding those different assumptions back into our underwriting model that's owned and operated by our M&A team? And so it's a pretty integrated process. Our LPs tell us it's like something that most others don't do. But I think what that has done is it gives us, there's very little daylight between what we think is going to happen when we underage transaction and what ultimately does, post-closing when we bring the whole thing to life. What we think we can do is pretty close to what actually gets done. So that's something we're pretty proud of. And I would imagine that creates a lot of discipline when you're looking at the operations and probably already having a plan on how you can execute in that area versus some financial engineering private equity styles. That's exactly right. So that's why our operators are the people that are like, dialing up the playbook. So I'm a big football fan in addition to my love of baseball. So I'll give you an analogy many years ago when Bill Parcells was leading the New England Patriots. He held this press conference and he bases in something to be effective. If you want me to make the dinner, let me go out and buy the groceries. And so that's the same thing as it applies to our operations team. We don't want a bunch of folks to just cook up assumptions and ideas about what can happen. Close the deal and throw it over the fence to our operations team and say, now go get it. We have our operations team who's going to own the execution of these operational transformations. They're the ones that upfront are deciding on whether those operational transformations should be and they're setting the parameters, what they know they can actually achieve. And so that formula has been consistent for us since we started the business back in 2008. And if it worked, you get us through 2008 to 2011 or 2012 during the GFC, we figure it should be able to work under any sort of environment. And so that's the methodology that we built in. We've been continued to operate against for 17 years now. Russ, I really like the track that we're going down and the operational focus and I'm wondering, do you have any examples of a successful implementation of your strategy? There's a business that we're actually in the process of selling right now. Today it's an IT company. services business, it's scaled, it's got gray margins, a lot of deep at the, but when we originally bought the business through a corporate carve out transaction, it was actually something core different. When we bought the business, it was effectively, it was a conglomerate. It was a business that had an education division and buried inside of it was this managed IT services business. That was very different in terms of the customers, the employees, the approach, the business model. We had this concept of divesting the education assets that didn't have the same growth profile, weren't esticgy, were more transactional, and doubling down on this IT services business. We identified that doing our due diligence process. We closed the transaction, we set things up such that we could measure each business performance independently. Then we set about a dual course of action. On one hand, we want to divest all those education assets and deliver our business to create equity value. At the same time, we ran a full-scale operational transformation on that more valuable piece, that IT services piece that had recurring revenue, lots of different financial characteristics and operational characteristics that the investment community loves. We executed a Salesforce transformation. The entire go-to-market model change. We did a pretty material call-sroduction strategy. We got into the supply chain on that business, and we executed an RFP, a value engineering exercise, a variety of different strategies that allowed us to expand or to smarten. That was a super heavy lift. We bought two businesses in one, one we love, one the other not so much. We found folks externally that could buy those pieces that we didn't love and put them to more beautiful use than what we thought we could do on our watch. That gave us all the latitude and the bandwidth to chase the real opportunity. That's a very typical profile of a business that we'll look at. Not all of them have as many pieces that are moving around as this one did, but it's very top of mind because it's a business that we've gone for over five years and it's at the end of its journey with us and it'll soon be in the hands of the next buyer who's going to execute their own strategy. Well, I love the way that you approach your business with pattern recognition as one of the comments you made earlier. I know that you have six stated levers of value creation, which does reinforce that pattern recognition when you get really good at those six as opposed to walking into an acquisition opportunity and just trying to figure it out on the fly. Yeah, I love sports analogies and movie quotes and there's a great dirty hairy quote that says a man's got a nose limitations. I think it was from the enforcers from my seventies era dirty hairy booty, but basically yeah, like we know what we're good at and we know what we're not. Meaning there's six things that we know exceedingly well. The six things are around Salesforce transformation, digital transformation, new product innovation, supply chain, cost restructuring, and talent transformation. We know those things really well. They're pretty expansive, but at the same time, there's a lot of other levers that you can go after inside of a business to positively impact performance and if it's not one of those six, it's probably an opportunity that we're going to avoid. Right? We know we're good at, but at the same time, we know we're not experts in and we try to stick to our knitting of where our team feels comfortable and moving in the ill and a pretty material way. So I think it'd be awesome if you would tell us your journey how you got to where you are today and I'll blend in a couple of thoughts to get you started, but you had spent time at McKinsey, Microsoft, Credit Suisse, and then you built Transome Capital. Can you walk us through how those experiences impacted you and what drew you to build the company? So I started my career right out of undergrad. Like many, I started investment banking and I started specifically at Credit Suisse First Boston, their technology group and that was headquartered in Palo Alto, California. And I was an investment banking analyst. My job was to basically work on IPOs and M&H transactions for companies like we're right in the middle of the bubble, right? 99, 2000. And I got there and I very quickly realized, I loved finance. That was what I grew up learning and undergrad, but I had no clue what any of these high tech companies were doing. And I really, it's like a cliche that people talk about in Poster Syndrome now. Like I had in Poster Syndrome. I was like 22 or 23 year old because I'm like working on all this stuff that I like know nothing about. And so I, that was my first gig. And then I moved in the technology industry and operating role and I landed at Microsoft and I landed on a product development team. A 180 degree change is probably not doing it justice enough in terms of like how my day-to-day work life changed. But it was 2001. And I am in building 17, in Reming Washington, work out Microsoft Office, working on a generation of the product that's probably going to see light of day in 2013, right? Like way advanced product development and research around it. And I'll tell you, I came out of that experience. I spent like a little over two years doing that. I loved being in the bowels of the business. I loved product development and innovation. I thought it was like the coolest thing. But I was like, but I don't love technology. Like that I can say now that I've like actually went down the rabbit hole and I've been doing it firsthand on like as an operator. I'm like, yeah, I love the function. I don't necessarily love the industry. And so I went to business school and thereafter I joined McKinsey. I joined McKinsey in the LA office in 2004. So over 20 years ago, I came in and they would throw every product development challenge at me. Regardless of industry. And I that was like amazing because I could see that the things I learned in Microsoft and the best practice there. I could keep applying that regardless of the underlying industry that I was working in. And honestly, that became one of the tenets of our approach here at Transo. As I said earlier, we're pretty industry downstate. There's stuff we don't like, but we'll screen in most underlying industries. And it's all about the problem that we're going to solve. So anyway, so flashing back to McKinsey, I started giving that product development and then I was able to expand my knowledge base and move into supply chain. And I found that super rewarding and then applying supply chain tactics and strategies and implementation across the variety of industries. And the kids getting better, better. I'm really digging it. And then thereafter I started working on projects for Blackstone for TPG. And if Blackstone is going to hire McKinsey for a two-week project, typically with their hiring than to do, at least back in the day, is try to solve what Blackstone or otherwise regard as an otherwise unsolved will problem. And so the bar is really high. And as I continue to work on those types of projects and get to good answer and solve that really hard problem, like every entrepreneurial story, someday I woke up and I was like, if I can do this for others, why am I not doing it for myself? And so that was really when the journey for Transome and starting business began. And I found a great partner while I was at McKinsey and my partner and co-founder Ken, who had a very complimentary background to me. And between the two of us, we felt you were really great in and in the end, super complimentary. And thereafter, Transome was born. And we started raising money in early 2008, totally oblivious to what was happening or starting to happen in the outside world. Super naive, like most entrepreneurs are when they start their journey. We closed our first deal, the week that Bear Steard's exploded in April of '08. We closed our second deal right around the time that Lumin exploded. And that was like a crucible moment. At that point, we're like, oh my god, what have we done for ourselves? I'm going to give you another movie analogy. There was a day where Ken and I felt like we're Frodo and Samwise, Gamgee, walking over the crest of that hill at the end of the first floor of the Rings movie. And I've given this example a few other times. But we walk over the hill and it's like you're looking out at Mordor for the first time and it's black and there's smoke everywhere and there's lava and fire. That's how we felt toward the end of 2008. And we have this feeling of like, all right, we're going on this journey just like the Hobbits did. We know the chances of getting home are slanted up. It felt like we were carrying the weight of the world our shoulders as all entrepreneurs do, regardless of how big or small of a challenge that are actually up against. And we had to get very real, very fast. And I think it was really around then where this super hands-on, super problem-solving, focused way of investing began. Because we didn't, we needed to take direct accountability over everything that we did. We didn't want to outsource any of it to consultants or contractors at third parties because if we're going to die on the battlefield, we're going to die with a ban at in our hands, right? We're going to die, you know, we're not going to be sitting up in the ivory tower just watching from afar, like we're going to be in the action. And so that's when we started really into our companies. We got to the ground floor. Their time for where we had to dig a trench and execute trench warfare. But that's where it all started from our business model perspective. It started from survival. And what we really discovered through that process was there's a lot more actionable opportunities to move the needle when you're sitting inside the business at that ground level than when you're sitting at 30,000 feet like a cruising altitude. It's a whole different set of opportunities that you see when you're inside the business, then when you're looking at it from afar. And if that business model was good enough to get us through the GFC and get us through successfully with some really great exits and opportunities, why the heck isn't it good enough for us to keep utilizing that every day they're after. And so I think that like a lot of folks, our business model and our grit was worn out in a bit time of great challenge. But it's worked still alive and swinging 17 years later. So God bless. And you mentioned your partner, Ken. Ken Fertel was one of my guests on episode 106, so a little while ago. And he's just a wonderful human being. So much fun to spend time with. We talked a little bit about this when we met for coffee the other day. And I think you and I are very similar in that we like to lead the charge up the hill with the bay and it in our hand with our troops behind us. And you have been in that seat. It feels like your entire career, although at different companies, you are always leading the charge, fixing things, and identifying the problems and rolling up your sleeves and all the different metaphors to describe that type of thing. And I know you've been very hands on with transom and everything that happens there. Talk to me about how that works and some of the transitions you've made in how your management style is now versus when you started. For me, I have always believed that fundamentally, many think psychological thing or a human nature thing, people just want to get help solving their problems. And so that has always been my approach. And I think that has been like that's inculcated in the DNA or from every company has problems, every leader has problems, every function inside of a company has problems. People are looking for good ideas all the time. Rarely, I have I run up against folks during my journey that when you throw out an idea or you say, why don't we try this? And you've got some real good reason behind it. Do they just put up a wall? Because I think everybody is just looking for a solution, to get to the next step or get to the other side or otherwise. I think that's like the approach that I've taken as a leader. I think that's the approach that everybody who joins transom has been here and indoctrinated into our culture. I'd like to think that's the approach that they take as well. It seems to be working. And for me, it's been to your point. We've been on this long journey so much of it was being in the trenches myself and doing the work myself for probably too long of a time, as opposed to grooming a team, empowering a team, and then working with them as a manager or as a leader to bring the best out of that. And so for me, that's been the transition that I've been on over the last several years where we've grown up work fully, so large. It's like, I can't have my hands on every single problem by all hours or minutes of the day and night. We've got to have a great team that can do that. And so building that team is probably the thing I'm most proud of. Certainly over the last several years, it's the thing that I'm most proud of. It's building that team and then being able to step back in what I think is an effective way, so that people know that I'm there to help whenever they need their problem, that helps solve in their problems. But at the same time, not being overbearing or micromanaging or showing up in that meeting that I don't really need to go to and I'm not really expected to be at, despite the fact I'm on the invite, that can be a hard transition, especially when you've felt like you've just been battling and battling so long to be able to step back and take a breath and be like, I actually for the first time in a long time have a little bit of opportunity to work on the business as opposed to just working in the business. And yeah, so that's been like a great pleasure as well as a great challenge. But we're several years into it now, and I think it's working out, but got to fight it every day because you just want to be in there in the action. It's the nature of our business. - I love action. I think it's very hard to make this transition that you and I both have been having. And I think that probably is just a common thing as people get longer in their career and you have to keep evolving and growing and building a team that can execute the way that you did and then let them take the reins and run it. - Yeah, especially when you're trying to instantiate in your team, this bias for action, right? You want everybody on the team to have this bias for action, but as a leader of the team, you need to know when to allow them to act as opposed to me jumping in with my own bias for action. And it's about knowing the right place to lean in and when to step back and let others who are more qualified to their work. It's an art, definitely not a science. - A quote that actually my son says a lot is Chance Favours, those in motion, which I think is just really appropriate for your business. And you already mentioned a couple of movie quotes that sports quote, "But do you have anything else that you say to your team often that you'd like to repeat?" - There's a good quote around that. I said, "Chance Favours, the prepared mind. Make your own luck." There's another way of saying it. - That's fantastic. So probably like me, you have a lot of young folks, young professionals, maybe college students asking you, "Hey, what would you do if you were in my shoes?" What types of advice are you giving them in today's interesting time that we're in? - I'll tell you, in my college experience, I thought for so many years that I had done it the wrong way. And after I graduated, and I heard about all my friends' collegiate experiences and how fun they were, I was like, "Oh my God, I really did it the wrong way." That being said, now that I'm way far away from being a college student, I can tell you, I'm still happy now that I took all the hardest classes. I didn't shy away from the teacher, that was a real ballbuster. I overloaded myself, 'cause at the time I didn't know what I wanted to do, so I thought I'd try to know a little bit of everything. In private equity, knowing a little bit of everything is super powerful. It's super powerful. And just, what, so I was grinding it out during college. It was a very, by all measures, like pretty boring, pretty lame collegiate experience I had versus pretty much everybody else. But I now look back on that, and I'm like, "Thank God." Because there's so much going on as it relates to a business and all facets of a business, and really trying to try to exceptional performance. Like, it's really hard. And being able to take at least the starting point of view toward most things has served me extraordinarily well. And I think that maybe it wasn't necessarily the curriculum that I learned back in the day, so much as it was, just like getting in the habit of doing hard stuff and feeling overwhelmed. It got me very comfortable living in that mind space. Such that now we've got dozen plus companies under management. They're all doing different stuff. They're all different challenges. And still, we know what I'm called upon to lean in and help. At least I feel like now I've got some sort of basis upon which I can add, even a shred of value, wherever I'm called upon. And so it started way back when, and it becomes part of your short military system. If you just are always challenging yourself and always trying to see the whole play field, and not just run around, and you know your route really well, like understanding the entirety of the map, I think can make a big difference. - So it's interesting what you're saying because I was listening to the CEO of Bank of America on a podcast the other day. And he was talking about his advice to young professionals, is one of my favorite podcasts called In Good Company. And he was talking about how his advice is really to get a very broad lens on a lot of different inputs and experiences, which your career and your college time clearly states that is really valuable thing. And he was talking about in today's time. It's very easy to get very myopic in your focus because all of your feeds, whether it's LinkedIn, TikTok, Instagram, even a news station, they're all feeding you what they think you want to see every day. And if you don't force yourself outside of that data feed, you end up thinking everybody else thinks the same way you do, and you can't attack the universe, the way that you should. I did pull something out that you said earlier that I think is interesting. And I want to ask your opinion on, is you said you don't love technology, but as you and I talked, AI is coming really fast. So how do you think about AI in the not loving technology mindset and how that affects your business and future businesses you may be acquiring? Technology from an investor perspective, I don't love. Technology as an enabler of business is like a prerequisite these days. And AI specifically is something that, you know, I would say this is all within the last 12 to 18 months. It's something that we use here at the fund in a variety of different ways to screen opportunities, build or funnel, call data out of our portfolio companies, to see trends emerge, not just inside the company, but across them. And then inside the portfolio companies, we're throwing AI at any problem that there could potentially be an application on it, meaning it could be as mundane as an accounts payable or accounts receivable function. And it could be as sophisticated as writing code for a business, right? If they have business applications that they need to write internally, right? They're using AI to literally generate new code and new apps like within a matter of days as opposed to months and at hundreds of thousands, if not millions of dollars, of third party expense. As an enabling function like tech, not like we're all about technology. And I think that free a lot of the businesses that we invest in, they're not up the curve with tech, let alone AI nearly as much as you would expect it to be a high performing business. That's a big value creation lever for us. When we talk about one of our big pillars of strength being digital transformation, that was more like we were thinking that more like the lens of, we know I'm a rip out your old dysfunctional ERP and put something new in that's going to be twice as effective at half the cost. Now, sure, that's like table stakes, but now like a big differentiator that we like to think that we bring to the types of assets we invest in is AI enable it. And despite the fact I'm not like a lover of spending 100% of my mind share in the technology industry, tech as an enable or productivity and value creation is like a pillar of what we do. I found somewhere online that you have a life-size replica of Han Solo and carbonite in your basement. Tell me the story about that. So that is a prized possession. What I would not want to the audience to take away from this is that I see myself like as a job of the hot-esque character or crying boss where I enjoy putting people up on my wall and lauding over them. We had, I want to say this is many years ago, I got this thing, it was like we had our first really big exit. And I didn't have a lot of money to time and get a little bit of money and I'm like, I have relatively humble tastes, but what's that thing that I as a child found like completely unattainable. And I don't think I was probably even creating like Instagram or scrolling feed and seeing this thing, but like somehow I saw it and some like Star Wars trade magazine and I'm like, oh my god, that's it. I can have Han Solo frozen up on my wall. That's like a childhood dream. That's like going back to 1983. I grew up in a small town in an upstate New York. It wouldn't have much. We had a lot of room, we shared war history. The thing we did was a movie theater and I saw a return of the Jedi in the theater with my dad 23 times in 1983, one eighth of the times. That was it for me. So being able to take a little piece of that dream and bring it into reality was like met everything and it doesn't hurt that my kids love it too. That is such a great story and I think you may have given me like a new question that I get to ask all my guests. What childhood dream did you think was unattainable that you've now attained or you've acquired? Because that's a really interesting one. And it's the one you have to ponder. Rest so my final question, a little bit different to you because a lot of my investment bank and private equity focused folks are buying and investing in companies or representing companies that are owned by a CEO, founder, somebody who's going to maybe stay on the business or stay with the business post closing. In your case, you're doing a lot of corporate carve outs and acquisitions from lender owners, et cetera. So I'm going to change my question slightly and I'm an investment banker and a seller of one of these assets of interest to transome. One of the things you want me to remember tonight is we're trying to figure out which partner we're going to move forward with to try to get this thing closed. I think that all transactions are hard, whether it's our kind of deal or the highest flying, highest growing business out there like getting any deal done can be a challenge. And I think for our businesses that have that extra degree of complexity or time sensitivity or just overall corporate sensitivities, we buy from a lot of corporate sellers, we try to make the brain damage as little as it can be knowing that in every deal there's going to be some degree of brain damage. I think that's a big benefit of having been doing this for 17 years now is when you do operate from a lot of pattern recognition and a lot of experience and a lot of deals that you bought in a lot of deals, they sold, especially our kind on the buy. Those kinds of deals can have an expectation for being very challenging and very stressful. And we try to employ a lot of our experience and make those transactions as painless as they can possibly be. And for the folks that sell to us like corporates or lenders or public company boards, as frictionless of a deal as they can find is oftentimes the best deal. And so obviously we try to be compelling on value and compelling uncertainty. I think we do a great job of that, but just knowing what really matters in a deal that's got to close by a certain date or is a corporate carve out and there's all sorts of interconnectivity between the business that we're buying and the parent company. Being able to navigate that and know what's important and how to navigate those things and being really sharp around what you need, the person what's nice to have is something that we spend a lot of time evangelizing to sellers. Well I saw I've really enjoyed talking to you today and I know that our audience is going to very much enjoy hearing your story all the way to Star Wars. Really appreciate it. We love your team. You've got a great firm and love spending time with them out on the road. So appreciate your time today. I can't thank you enough. Thank you for joining us for North Star's Private Equity Fast Pitch. For more information about Fast Pitch or our boutique private equity heavyheader events, you can visit us at enorthestar.com. [Music]