Zell Lurie Institute-CVP
Student Teams Dish Up Hot Public-to-Private Buyout Pitches at Annual Private Equity Bake-Off Competition
Competition heated up at this year’s Private Equity “bake-off,” where two semifinalist student teams dished up their best buyout pitches for purchasing a public company in a private equity fund acquisition. At stake was the chance to win the Alan Gelband Private Equity Award and a share of $10,000 in prize money.
The 12th annual “battle of the pitches,” held by the Center for Venture Capital and Private Equity Finance, or CVP, at the Ross School of Business, marked the finale for MBA and U-M graduate students enrolled in Professor David Brophy’s Private Equity Finance class. At the beginning of the term, Brophy asked student teams to select and screen a public company in the middle-market sector that they thought was ripe for a private-equity takeover and then put together a highly detailed buyout proposal to present before a judges’ panel of seasoned venture investors and investment bankers.
On the final day of class, Dec. 19, eight teams made their pitches to two different panels, which in turn selected two semifinalists to compete in a “bake-off” at the Glencoe Capital Private Equity Class Dinner in the Blau Colloquium. Over a steak and fish dinner, the students, alumni and sponsors in attendance cast their votes for the team with the best buyout pitch.
“This is the capstone for the course, where students put all they’ve learned into action,” Brophy explained. Throughout the term, he invited Ross alumni, many of whom are his former private-equity students, to bring live cases into his classroom and discuss the ins and outs of deals with students. Over the past semester, Jeff T. Blau, BBA ’90, CEO of Related Companies, Harvey Spevak, BBA ’87, MAcc ’87, president and chief executive of Equinox Holdings, and Frank Hayes, a U-M BBA graduate, who is now co-managing partner at Wynnchurch Capital, were among the finance industry leaders who made appearances. In addition, Rajesh Kothari, managing partner at Cascade Partners in Southfield, Michigan, and Jeff Bistrong, senior vice-president at Harris, Williams Inc. in Boston, were guest speakers in the class.
After the audience vote for the best buyout presentation was tallied, Alan Gelband, BBA ’65, MBA ’67, the founder and managing director at Gelband & Co. investment banking, and the benefactor for the annual Private Equity Award, announced the winner and runner-up of the 2016 “bake-off.”
“This competition is a great pleasure for me, and I always feel like I’m coming back to an extended family here at the Ross School,” he said. “It’s hard to imagine the benefit it has brought me in my life.” Gelband credited his friend, mentor and former Ph.D. advisor, Dave Brophy, for his lifetime of work as an educator of multiple generations of Michigan business students, an academic bellwether for private-equity and venture-capital studies at the U-M and a founding father of the venture-capital and private-equity profession and industry in Michigan and the nation.
Gelband presented the first-place, $7,500 Gelband Private Equity Award to the student team that proposed a $93 million purchase of Ark Restaurants Corporation. The second-place, $2,500 award went to the runner-up team, which made a strong business case for a $70 million acquisition of Rocky Mountain Chocolate Factory. “The students were well-prepared and did a great deal of work before and during their presentations,” Gelband said.
Another highlight of the annual class dinner was a keynote talk by Ian Bund, who has been active in venture-capital investing and building companies since 1969 and brings deep financial and technology expertise to Plymouth Venture Partners, where he is currently senior advisor to the general partner. Bund reflected on the formative early years of the venture capital and private equity industries, and the catalysts for their growth. “I’m proud of the entire ecosystem here in Michigan,” he said. “As an indicator, for my first 35 years in venture capital, we did investments all over the country. But in the last 12 years, we drive to wherever we invest.”
Bund tipped his hat to the Michigan Growth Capital Symposium, the Midwest’s premier venture fair, which was launched by Brophy in the early 1980s and celebrates its 36th year in May. “The University has had six consecutive presidents who have spoken about entrepreneurship, and that wouldn’t have happened without David Brophy’s credibility and perseverance,” Bund remarked. “His venture capital course has spawned many children, and private equity, innovation and spinouts are only part of the long list of what he has wrought.”
David Evans, the founder, chairman and CEO of Glencoe Capital and sponsor of the annual Private Equity Class Dinner, was unable to attend this year’s event. However, in an earlier phone conversation, Evans remarked: “The Private Equity competition gives students a chance to work on real-world opportunities in a competitive environment, much like they would in a real investment firm.” Evans said he got his start 34 years ago as an undergraduate student with David Brophy, who taught him about investment, venture capital and private equity. “Without Dave (Brophy), I don’t think I could have gone on to do the things I’ve done, including building a $1 billion-plus private equity firm and now forming a conglomerate that does over $750 million in revenue annually. He’s been a great advisor, mentor and friend over many years, and is one of the finest individuals I know.”
Building Future Leaders in Private Equity
For the MBAs at Ross and graduate students from other U-M schools who competed in the 2016 Private Equity competition and “bake-off,” the event marked an important milestone in their academic careers at Michigan. Matt Smith, a lead presenter for the Ark Restaurants team, said: “It’s a chance to take the theory we’ve learned and apply it to the real world with real-world practitioners. Having very high-performing individuals take time to hear what we say and provide feedback and commentary to help us advance as students means a lot.” Dave Spallina, a member of the Rocky Mountain Chocolate Factory team, remarked: “It brought together every concept in class, both qualitative and quantitative. Our biggest challenge was finding the “Goldilocks” company that met all of our buyout criteria, including cost cutting opportunities and growth in the future, while staying within our ability to fund the deal.”
Junyi Wang, a master’s degree student in applied economics who helped her team pitch a buyout of Lexicon Pharmaceuticals, said the competition was the first time she dealt with a private equity case first-hand. “During this project, I learned how to analyze an industry and a specific firm,” she explained. “Our team not only needed to see the company’s financials, but also pay attention to its management team. In the future, this will be easier for me.”
The competition judges, who included private equity practitioners and investment bankers, assessed the student teams’ presentations and fired off questions about investment considerations, key due-diligence items such as debt-service history, the team’s value-creation plan, the price and structure of the deal and the returns analysis. “At the competition, students learn to think about an investment from a private equity perspective,” said Bryan Berent, managing partner at Blue River, an investment banking and M&A advisory firm. “They need to buy right, improve the company’s operations to create value and then exit right.” Bryan Tolles, a partner at Oakland Standard Co., a Michigan-based private equity firm, observed: “Students learn to think holistically about a business and how to create value. Getting the deal done is just the beginning. The real fun begins after closing.”
First-time judge Jim Guddy, a partner at Linsalata Capital Partners in Ohio, said he “anticipated hearing some good and thoughtful ideas from enthusiastic students” at the competition. And he was not disappointed. Chris Stallman, a principal at Fontinalis Partners, reported: “The students do a good job of understanding the constructs of how a private equity deal works. The winner, the Ark Restaurants team, showed the best understanding of the business itself, not just the financial transaction.”
Supporting the Work of CVP
The Alan Gelband Private Equity Award competition and Glencoe Capital Class Dinner represent only the tip of the iceberg, in terms of the important work being done by David Brophy and the CVP at the Ross School, and the incredible support and recognition he and the center receive from his former students, the Ross alumni network and the venture investment community at large.
“The momentum that the U-M has gained in entrepreneurial activities is largely due to the work that Dave Brophy has been doing since the early 1970s,” Bund said. “He was one of the first professors in the country to have a venture capital course, and in the early 1980s, he began the Michigan Growth Capital Symposium. Due to his early work, leadership and inspiration, all of the University’s professional schools are now involved in entrepreneurial activities. I think Dave Brophy is indicative of what great leaders and great entrepreneurs do: They have a vision, they persevere, they innovate as they go along, and they keep resetting what they are doing to be relevant to the marketplaces they are addressing.”
Evans remarked: “Dave Brophy is one of the foundations of venture capital and private equity in Michigan. Our firm felt it was important to support the CVP and give back to the Ross School, as well as to express our appreciation and respect for what he is doing.”
“Dave Brophy has done a terrific job of educating hundreds of people in a structured academic environment at the Ross School, which is not easy,” Gelband said. “He’s carved out a unique area, and has made the University of Michigan more competitive while preparing students for higher-paying jobs in the venture capital and private equity industry. It’s very rare to have a win-win event like the Private Equity competition and ‘bake-off.’ Whether students win or not, I think they really enjoy it.”