In this episode of The Derivative, host Jeff Malec sits down with Suzanne Yoon, Founder and Managing Partner of Kinzie Capital Partners, for an in-depth exploration of private equity. Yoon shares her remarkable journey from the daughter of immigrant entrepreneurs in Chicago to leading a lower middle market buyout firm.
Drawing from her rich background, Suzanne discusses the evolution of private equity from financial engineering to value creation, revealing how her firm identifies and transforms businesses across manufacturing and service sectors. She provides candid insights into deal sourcing, the challenges of modernizing family-owned companies, and navigating today’s complex investment landscape.
With perspectives shaped by experiences ranging from the Enron workout to founding her own firm, Yoon offers a compelling narrative about entrepreneurship, strategic investing, and the importance of passion in business. Join us and gain intriguing insights into the inner workings of private equity and the critical role of technology and operational improvements in driving company growth. SEND IT!
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Check out the complete Transcript from this week’s podcast below:
Value Creation Over Financial Engineering: Kinzie Capital’s Suzanne Yoon on Modern Private Equity
Suzanne Yoon 00:08
We have this, you know, mindset of, how do you modernize the business so that a business can scale so fundamentally, is it a good business? Is there an opportunity set for it to continue to grow? How do we do that?
Jeff Malec 00:25
Welcome to The Derivative by RCM Alternatives, Send it!
Suzanne Yoon 00:29
Hi everyone. This is Suzanne Yoon. I am the Founder and Managing Partner Kinzie Capital Partners. We’re a lower middle market focused buyout private equity firm in Chicago, and We’re going to talk private equity on the derivative you
Jeff Malec 01:06
Hi, Suzanne, how are you
Good. Where is your office in Chicago?
Suzanne Yoon 01:10
So we are located at the corner of Clark and Madison, which is little counterintuitive to the fact that the company is called Kinzie County, right? Actually, when I named the fur, or when we came to the name on the firm, it was because I wanted something more like dedicated to Chicago. So this is my homage to Chicago, and I actually spent a lot of time on Kinzie street because of my former office was at the Merchandise Mart, and also because the east bank club is there. Yeah,
Jeff Malec 01:53
I don’t even know my Chicago History, or if you know what who Kinzie is, what is Kinzie? So
Suzanne Yoon 02:00
Kinzie? Kinzie Street was actually named after the Kinzie Bridge, which was the first bridge that was built over the Chicago River. Originally rail bridge, and it was named after John Kinzie, who was credited for bringing international trade to Chicago, and he was initially started as a fur trader going back a long time. So lots of on that, on that street and bridge.
Jeff Malec 02:37
Love it, and then where that’s no longer right, the Kinzie Chop House.
Suzanne Yoon 02:43
There’s couple Kinzie Chop House, and there are no private equity firms named after Kinzie Street, unlike every other street in Chicago and
Jeff Malec 02:53
right there’s Madison partners, LaSalle partners, Dearborn, there you go. What is it about Chicago is New York, the same? No, because they’d all be numbered partnerships, right? Fifth partners, third partners. I think people
Suzanne Yoon 03:08
love Chicago and it’s fun. Maybe there’s not enough creativity. So, right? What do you call yourself? The name of the street that you are.
Jeff Malec 03:20
How have you seen that downtown area? Do you think it’s coming back? There’s still a lot of empty offices. I
Suzanne Yoon 03:26
think there’s still a lot of empty offices. There’s definitely a lot more foot traffic than you know the previous years. But I think the biggest, probably the most obvious for me is, like the parking garages, we started coming back. Private equity is a very tough business to do, remote and particularly when you have a young team. And you know, we were really deep into our businesses, and when we’re closing a deal, the team kind of has to be together. And so we came back into the office because we were closing a deal very carefully, but in July and August of 2020, and when we would come in then, and maybe we came in a couple days a week, masks on, like, you know, fully separated from each other, but still able to sit in a conference room together. Back then, the parking garages were completely empty and and then gradually, as time has gone on, I’ve noticed, if you got in at 630 still tons of parking spots, and the parking spots are disappearing, like, you know, earlier and earlier, and you have to go up further and further in the parking garage,
Jeff Malec 04:51
higher and higher. Yeah, Monday
Suzanne Yoon 04:53
through Monday through Thursday. Now the garage I park in is completely passed. Act. So they’re coming back Friday has a little bit more room, so I do think it’s coming back, but it’s tough because there’s a lot of I think there was an article just this past week about zombie buildings in downtown. Yeah, are
Jeff Malec 05:16
you for the mayor’s plan to turn that all into low income housing like La Salle Street, basically, I think they abandoned that, but that was floated out there.
Suzanne Yoon 05:25
Um, I think you have to get business back. Yeah, no, it’s not about residents. Like business is what drives all the other right? Business has businesses what drives economy and the vibrancy of any city. And so if we lose businesses out of Chicago, it’s not going to bring people back. You have to create jobs here. You have to, you know, and then everything else will kind of follow suit. There is, there is a need for additional residential but I think the conversion of the idea of converting old, you know, zombie office buildings into residential I think seems like a great idea, until you actually talk to developers who will tell you that converting office space into housing is really challenging because of the plumbing and all the Other things that you would have to rehab. The cost would be exorbitant. Yeah?
Jeff Malec 06:24
It’s like, Hey, everyone, you got to go to the corner of your floor to use the restroom. Yeah, work. No. You
Suzanne Yoon 06:30
have to read. You essentially have to re build the buildings inside out. And that that actually costs more than building a new building,
Jeff Malec 06:38
although I had a friend who lived in that AIG conversion in New York that was pretty cool. But anyway, my my brain just went to, we’re talking parking garages. Of like, what are we doing all this hard derivatives and private equity stuff, or just own a parking garage? And it seems like such a nice, easy business, right? You’re sitting there like, I should have just done that. I so give us a little background. How you got started. You were Iowa grad, right? I went Western through and through.
Suzanne Yoon 07:14
So grew up in Chicago. My My parents were immigrants. My father was a biomedical engineer, and my mother was a nurse. They came to the United States to study and work. Here. My father, because of his and he came to Chicago, they ended up in Chicago from where, from South Korea got it. And my father, I think, quickly realized that, because of his language barrier at the time, he would have a difficult time getting promoted, and ended up borrowing money from friends and family and bought a deli in Cicero. And I was four years old when that happened. We ended up moving to Cicero from Rogers Park, and that was the first business I was four years old, and that’s my first recollection of working. Was I would go to school, come back and hang out with my dad at the deli. He was babysitting me. I thought I was working, and he would have me stock cigarettes in exchange for Twix bars. So I think he’s trying to keep me busy, and also, you know, teach me work ethic. I think along then along the way, he started to build out more businesses went into the south and west sides of the city. I grew up going with him on the weekends, and owned, built, acquired, and kind of developed dry cleaning business with multiple drop offs and two plants had he had a sandwich shop called Charlie’s blade and spade sandwiches on the south side. He owned a couple like delis and so, like really, built this business and a bunch of pay telephones. So when pay tele, I love
Jeff Malec 09:03
that, right? For you younger listeners, a telephone is something you would put money into to make a call,
Suzanne Yoon 09:10
right? Because we didn’t have cell phones, right? Yeah, and I don’t know, I didn’t
Jeff Malec 09:15
even know that the pay phones were, you leased them to the city or something.
Suzanne Yoon 09:19
No, you actually people owned them and and they paid the we paid the phone bill. And then you would, you would go and collect them. And on the weekends, I would go with my dad, and he would drive around and take all the quarters out and back then, you know, this is the 80s. Early 80s immigrants were the ones who went into the south and west sides because they needed businesses too. Yeah, so, you know, I, I grew up, you know, in the city really exposed to a lot of diversity, and really, everywhere we went, I was like the odd man out, right? If I’m in the south and west sides, whether I was in a, you know, black or brown native. Neighborhood. I was only Asian kid, you know, with my parents, we moved then, and then living in the city. We were on the north side. At that point, we were in Peterson Park, and then, unfortunately, my father was killed in armed robbery when I was 10. And my mother was a nurse, and she had I was 10, my sister was five, my youngest sister was three, and my brother, my mother was four and a half months pregnant with my brother when my father passed, oh, my goodness, so she, like, you know, every Asian tiger mom that you read about decided that we needed one. She was afraid to be in the city alone, so she basically called a real estate broker and said, I need, I need to move to a school district with the highest SAT scores within an hour drive to my work. And at the time, she was working at Cook County Hospital. And so we ended up in Winnetka, Illinois, or Northfield, is like, kind of on the border of Northfield and Winnetka, and ended up moving to the north shore because New Trier at the time, had the highest SAT scores in the country, and that’s all she knew about the school. So had a lot of focus on education. I was the oldest of four.
Jeff Malec 11:24
There was become sort of a secondary mother help raise all those maybe,
Suzanne Yoon 11:29
maybe the my siblings might tell you I was primary. My mother ended up working. You know, she she worked like double shifts. I mean, she did everything she could to get us through school, I went to New Trier. I was really fortunate to get a scholarship to Iowa, and I was a presidential scholar at Iowa, and that’s how I ended up there. I actually wanted to go to the East Coast. Had early admission somewhere else, but got, you know,
Jeff Malec 11:58
a great what’s a Presidential Scholar.
Suzanne Yoon 12:02
Presidential Scholarship is, it’s, there’s two, there’s one scholarship, I think, given at the time, I don’t know if it still exists. It’s literally, you know, the president scholarship. You have to go to a public university, and there’s one per state per year, and so it you have to qualify as a presidential scholar, and the university also has to accept you as a scholar. So I ended up there. It was, yeah, everything got paid for I was very fortunate. I had no, no debt. You know, my housing, everything was paid for while I was there. So I had a great, great education at Iowa. I still serve the university as a trustee for the alumni and advancement Iowa Center for Advancement.
Jeff Malec 12:59
I love how they do the my brother went to Iowa, so I’ve been to a few football games in the isn’t it? They the kids in the hospital look out at the fourth quarter or something, yeah. And
Suzanne Yoon 13:11
actually, that was an alumni who’s on the trustee board with me who donated that entire hospital building. Fantastic. Yeah, it’s a, it’s a it’s a great place. So I’m I was really fortunate to have gone there and met Luke. And anyway, while I was there, I originally went to Iowa thinking I was going to go into, you know, policy, and so I was a political science and like writing double major, or English double major, thought I’d be like a presidential speech writer took an economics class thinking, Oh, I better really understand economics, because that’s what they all talk about, and, and, and then we kind of fell in love with it. And I think also I’m like, a product of 80s movies, and I knew I wanted to make money. So Wall Street, Pretty Woman, you know, all the, yeah, all the, all the movies about the very powerful men.
Jeff Malec 14:09
And you were never thinking like that, I’m a woman, that I’m a minority. Never crossed your mind. You’re just like, No, I’m going to do this. Well,
Suzanne Yoon 14:17
you know, it’s interesting, because of course, of course, it did. But I remember, I have a friend I watched Pretty Woman with in high school, and I and she, she reminds me that I said to her, you know, I think it’d be, we should learn what Richard gear, you know, like Richard Gere’s character, like what he does, because he, like, buys companies and he breaks them up, and then he, like, started rebuilding them, right? That’s the story. If you look at what he did, I and I said to her, I’m like, we should learn what he does, because, like, no one’s saving me off a street corner. Yeah. I’m like, I think it’ll be easier to figure out, like, what you know, right?
Jeff Malec 14:57
The rest of the girls watching it are. Like, Oh, I want to be her and get sweaty. No, no, I want to
Suzanne Yoon 15:03
be him. Yeah, I want to be him because I don’t look like Julia Roberts, and that’s probably going to happen to me, right? So it was,
Jeff Malec 15:09
although I think she had a body double in that movie, but oh well, we, actually, we got a blog post. We’ll put it in the show notes, way long ago, the best investing movies, and it’s like, Wall Street and boiler room and those things. But I put, we put pretty woman at the end, because I’m like, this was a movie about a private equity guy holed up in his hotel room trying to figure out a deal, right?
Suzanne Yoon 15:32
Yes, that’s what he’s doing. And, you know? And I, and I remember thinking, you know, I think back to it now, I’m like, Oh, he just did breakup sales. That’s what he did. You know, he would buy companies, break them up, break them up into pieces, and then he turned his life around
Jeff Malec 15:52
to so were you thinking you always wanted to start your own firm? Or no, that was a way out in the future.
Suzanne Yoon 15:58
I think I’ve always because I grew up in entrepreneurial home. I was influenced by my mom and dad, who really came here with nothing right to build like that. It’s very like the spirit is very entrepreneurial. My father built businesses. I
Jeff Malec 16:15
love that he was selling cigarettes out of the deli, yeah, well, grab your sandwich and make sure you grab your cigs. Oh, it was
Suzanne Yoon 16:21
literally, like, right next to the counter, right? That’s where you would you would get a deli. You would get your, I don’t know, your your toiletries, and and buy a couple packs of cigarettes and, but
Jeff Malec 16:36
smart business man, that was probably his best margins around the cigarettes at the
Suzanne Yoon 16:40
time, probably, well, I don’t, I don’t think that was that. I don’t think anyone knew how bad, yeah, but I do find that ironic, because I’m so health conscious too, that that’s what I was doing for my first job at four
Jeff Malec 16:56
and so at college level, did you know? Like, okay, I wanted to be that guy, but private equity is this thing that’s going to grow and become huge. Or you just were thinking, I’m going to get a friend in
Suzanne Yoon 17:06
the door. I knew nothing. I knew nothing about private equity. And I think most people, you know our generation, if you ask them, like, oh, did you want to get into private equity, they would have told you. I had no idea what it was. Because if you go back to the 80s and 90s, P private equity itself was for the ultra elite. Yeah, still is, to some extent, but it was for the ultra elite. It was for people who had access to capital. Private capital was very, very hard to come by, unless you were in certain circles, right? What I didn’t know is I came from a single family home and watched my mom work, you know, her tail off to put us through like college, get us good educations and and the one thing I didn’t know is I knew I wanted financial stability, and I had to make sure I took care of that for myself, that that was not going to come from, you know, me doing anything else, but like working hard and figuring it out on my own. And I also knew I that that was probably my biggest driver, was what is going to create financial stability for myself and for my siblings and my family and my future family and and I’m also hyper competitive. So, you know, just those two things. And then I, you know, as I started studying economics, as I started in banking, because I knew I wanted to be in the business of money, whatever that was going to be, I was really fortunate to go through an analyst training program at a bank. It was I originally started with AB and Amro, which was at the time the sixth largest bank in the world. I also wanted to do more global learn wherever I could go. I went through different rotations. I ended up in at the time the special assets group of the bank that it was really interesting. That’s where we held all of our off balance sheet, private equity portfolio, all the derivatives, like just really esoteric assets, you know, were always held, you know, at the special assets group and off balance sheet. And I learned a lot, but I also learned a lot about what goes wrong really early in my career. So that was the time of all the front page Wall Street Journal articles about Enron, WorldCom, Tyco, you know. And I started with lower middle market and middle market businesses, and I worked on one of my first deals was Enron, the workout of Enron, we had the largest unsecured creditor in Enron at the time. It was like a half a billion dollars. And in the, you know, late 90s, early 2000s that was a lot of money. It was a huge position to be in. And I could tell you so many. Lessons learned from that just being a fly on the wall, and I was really fortunate to have been the first associate that was hired into that group, because it usually had been the most senior bankers and executives of the bank, but because the volume was so high like I think they decided the bag carrier, and that happened to be me, and I was happy to do it, because I learned. I learned a lot.
Jeff Malec 20:25
Yeah, did you any crazy stories out of it, like that you in as you were uncovering things, or it’s all public.
Suzanne Yoon 20:34
So many, you know, I think one is, you know, Enron was really interesting. Enron was the one I kind of always go back to, because it was fraud, right? Fraud is really tough to detect, and because you have really, really smart people who are playing the game of cover up. And that was the ultimate Ponzi scheme, yeah. And I think what I would go back to is, I remember everyone was doing analysis, and not just us, because there were several other banks in it. Every major bank in the world was in that deal, and no one could figure out where the cash was going. But I think the assumption was, well, the Anderson guys are in here. The Enron executives are so smart, they’re the smartest guys in the room, right, right? So, like, there was a lot of, I think even for myself at the time, I’m like, I don’t know anything. I’m like, Junior, this isn’t making sense to me. I can’t find it. And I always just thought, like, well, and it wasn’t just me. Everyone thought that. Everyone thought everyone else was smarter than them, and so we should just go with it. And
Jeff Malec 21:47
then it had the allure of, like, Oh, they’re trading power, and it’s complex, and you don’t understand that, yeah, and
Suzanne Yoon 21:52
you just don’t understand it. So, like, but you don’t want to miss out, right? And so, you know, I do think it’s probably a lesson I learned really early. Is like, trust your instincts. You know, fact check something doesn’t make sense. It probably doesn’t make sense
Jeff Malec 22:09
for a reason. Yeah, reason and then your
Suzanne Yoon 22:13
group follow the cash. Always follow the cash. Because I would say, every time I’ve detected or we have found a problem in any of the investments I’ve done over the last 25 plus years, that’s where it shows up first. It’s not because you can, you can play with a balance sheet. You know you can, cash is king, yeah, but cash is king.
Jeff Malec 22:42
I so you start Kinzie. Tell us what Kinzie does. Oh, yeah, touch down a little bit mid market.
Suzanne Yoon 22:50
So I, yeah, and I, I, I worked at very large institutions. The first, you know, 10 plus years of my career, and then I went, then 2008 happened. 2008 nine happened. And at that time, I was with a commercial finance company and realized that the reliance on the public markets and the commercial finance, you know, in the commercial paper market, it’s really challenging, because you just can’t control your own destiny if something like the market crashes, right? So at that time, I decided I really wanted to go somewhere with more long term, locked up capital and really enjoyed the middle market companies that were growing, building and where I could actually, like, have a tangible impact, you know, on the on those businesses. So I joined a private equity firm on the East Coast. I was in New York at the time, I shouldn’t mention that. So I was living in New York and had decided that I wanted to be somewhere with more long term locked up capital, joined a private equity firm where I, you know, grew into a partner role. I was there for seven years, and in that during that time period, moved back to Chicago. I am, again, a native Chicagoan, and so is my husband. And, you know, I wanted my kids to grow up here, and I also really needed access to free babysitting, which was a huge incentive for me, because both our parents are here. And, you know, as I, as I was commuting back and forth to New York, you know, there are a couple things I that really kind of drove my decision to start Kinzie. I think one I saw a market opportunity in the Midwest with, you know, I would say a lack of sophistication in the lower middle market. There are some really, really good firms and funds in Chicago, but a lot of opportunity and not as much competition to. So the market was changing really dramatically. Value creation and operational improvement has become a really big component of fundamental private equity investing, and it used to not be. It was more financial engineering. So that that transition was happening, and I had an opportunity to partner with a technology consulting firm. So my co founder is the founder and owner of 160 person tech consulting firm that could really move the needle on value creation in terms of modernizing the companies that we would be investing in. And then third, I really just wanted to control, and probably this comes from my parents and all the influence I’ve had over my life, but control my own destiny and create a culture that I could be proud of. And so I think that those were my main drivers when I when I started Kinzie, and I really would tell you, so one of the hardest decisions I’ve ever made. You know, I walked away from a very, very lucrative um career, and had to start with, really, not like everything I had into the business. It was a huge bet on myself and but
Jeff Malec 26:14
that doesn’t that feel great, like I’ve done that twice now, but right, you just feel alive in that moment. You’re like, okay, yes, it’s like,
Suzanne Yoon 26:21
no, really, I I equate it to jumping off a very tall cliff, yeah, and you can’t see the bottom, can’t see the bottom, and you fall into like water, and you’re just swimming for your life, like, from the second you jump off the cliff. So, and that was, I still feel like that a little bit, but I see Sure, no,
Jeff Malec 26:47
the real quick, I just thought of, I we should have mentioned at the top, our kids are friends in school, together on the baseball team. But for your kids, do you ever think I think my career advice for them is going to be, start big, like you just said you and then you can always go do your own thing. I kind of started small and tried to do my own thing from the get go, and I feel like it’s been a battle at times. So my advice would be, start big, then you have a Rolodex, you have all these connections, you have the experience of the big firms, and then you can go small. What do you think?
Suzanne Yoon 27:21
Um, you know, I, I actually don’t know if there’s a right or wrong answer to that, because I know plenty of people who started small and did amazing things, you know, like, really, but I there, there’s probably, like, two, one piece of it, like two pieces of advice that I, you know, I would give them, and one is kind of alluded, I think, in in line with what you’re talking about, which is, experience always trumps intellect. So it doesn’t matter how smart you think you are, the things that you learn from actually doing working life and listening, you know, and having making those mistakes. It’s like, you know, that’s what, that’s what teaches you leadership, yeah, and you know. And I think the other is you really have to have a passion if you’re going to do something on your own, like you have to love what you do, because if you love what you do, it’s really easy to be good at it. It’s really hard to be great at something that you hate. So I think you have to find what is your passion, and some and passion doesn’t mean you have to love it every day. I think passion also means, like, it’s really hard, right? Like, our boys play baseball. I mean, baseball, I didn’t play baseball, but I’m learning as, I mean, one of the most challenging sports. I have no idea why they play it, and they love it so much because it’s, it’s so heart wrenching. It’s
Jeff Malec 28:56
a someone was telling me it’s an individual sport masquerading as a team sport, right? So you’re there and you either do it or you don’t. You either make the play, you make the catch, you get the hit, or you don’t. So you’re like instant results,
Suzanne Yoon 29:09
but the amount of work and effort you have to put into it to be good at it, and it’s harder than it is fun, you know? But they still love it, right? So I do think it’s more about passion, and it’s not every day has to be great. You just have to have, like, really believe in something, that you’re willing to put the time and effort into it.
Jeff Malec 29:29
You said something interesting, value creation versus financial engineering. So in the past, private equity was all about just, hey, we’re going to lever up and put some money into this business and watch it grow, right?
Suzanne Yoon 29:41
It was easy because capital was not easily available. So when you’re buying a company for one time, this is going back to the 70s, right? One times multiple, two times multiple, or even three of cash flow, and that’s my business, right? I’m. Acquiring businesses based on cash flow and fundamentals and growth perspectives, whether it’s through M and A or organic growth, but those are my levers then, and if you and if you could use and if you could buy the entire company for debt and just pay down debt, your IRS will be huge. Well, today it’s very competitive. Capital is more readily available. Financial Engineering is table stakes, like shouldn’t even be in private equity if you don’t know how to do the basics of financial engineering, because that also creates value, but the real
Jeff Malec 30:42
and what do we mean exactly by that of like so that means showing up the balance sheet and getting cash flows correct, and things of that nature. So
Suzanne Yoon 30:50
I think that could mean anything from, how are you structuring a deal, right? Are you structuring the deal so that people have skin in the game up front so earn out seller nodes. There’s, there’s so many different structures you can put on a deal to protect your downside, upside. Are you using prep, using, you know, how much leverage are using? Is it senior debt? Is it meds debt? Is it a Unitron? So there’s just so many different ways to get things done. And if you’re doing a merger, are you contributing value? What’s the value versus actual dollars in and how do you use leverage to juice returns? All of those things are, I think what you learn in balance sheet management, but, and that’s experience. You know, you’re not going to learn that unless you have actually worked at a firm or at a bank and maybe in your finance class, right? And a little bit of that in college, but you certainly don’t really learn to do it until you’ve been working on it for a while. But
Jeff Malec 31:55
the end result of that is, how do I invest in this business with the least downside for the fund or the firm as possible? Yes, of course, yeah. And
Suzanne Yoon 32:04
with the most growth perspectives, right? So the biggest position with the most downside and every and depending on what asset class you’re in, it’s going to be different. So for a lender, that’s very different, because they just can’t lose money, right? Equity you expect to have some you know, there’s going to be. The more risk you take, the more you know, opportunity, obviously, there is for return as well. So I think that that’s when I say financial engineering, just the understanding of finance, you know how to use money, you know, to create returns. But there’s if everyone’s doing that, and that’s the table stakes. How do you get to alpha?
Jeff Malec 32:50
And now money is more easily available, right? So
Suzanne Yoon 32:54
the alpha then has to be fundamentals. You know, to me, it’s like getting back to fundamentals of investing, which is business, the business itself, you know, the management teams, the growth prospects, what are we underwriting, right, everything from supply chain to customer you know. Are there opportunities for add on acquisitions? Can you grow, you know, and buy down your multiple or buy, you know, does it? Does it create, you know, expansion? Do you take out? What is it? What is a competitive landscape look like, and, and how do you create value faster, right? How do you scale businesses faster, especially businesses and we invest in, you know, manufacturing and business services. So, you know, I would say old line businesses that are necessary for the economy to grow and move, but they make things right, like we’re making things. So it’s not software, it’s not, you know, highly, you know, sexy in any way, they’re absolutely necessary for the economy. So a lot of the businesses we’re acquiring are from founders. We just acquired a business that was 54, years old, and their server, like nothing is on the cloud. They’re still on, you know, in a server room, you cannot scale, yeah, you can only go so far. So then the fundamental is, how do we modernize that business? So it’s a great business, but there’s the scalability of it. We saw it. It’s like, Oh, it can’t scale without investment into the business, which means, you know, team, technology, processes, you know, all of those things. So it’s a, it’s a, it’s a big lift. But, and then for
Jeff Malec 34:45
manufacturing, is there also the piece of like, modernizing the plant, robotics like that all can come into play, yeah.
Suzanne Yoon 34:54
So it’s, it’s, it’s a that, actually, that is definitely a piece of it. But what we find is a lot of the if it’s a manufacturing company, and they’re they, and it’s engineering, right, there’s engineering involved in that. They’re actually really, they’ve done that really well,
Jeff Malec 35:13
right? If they need the new machinery, you probably don’t want the business, yeah, right, like the ones that have figured that,
Suzanne Yoon 35:20
right? Maybe there’s some capex that’s going to require, like, we will underwrite that too. There are certain businesses that do require cap capex to grow. There are others that have already put the capex in. But those all kind of, those all come into play in terms of when we think about valuation of a business, and
Jeff Malec 35:41
then it’s almost you have to be kind of cocky, right? And be like, Hey, we know better than this 50 year old business, how to scale it. Right? To me, I’m going to be at the guy at the 50 year old business, like, Hey, we’ve done everything. We know how this business works. We know the industry we’re in. So how do you bridge that to be like, we know, like, is it just bringing modern tools and saying this will work better. You have to know what they’re doing also, you
Suzanne Yoon 36:05
know, and most of the time they know that they have to modernize their businesses, but they didn’t do it because they didn’t know how and it was going to be disruptive. And it’s hard putting an ER an ERP system into a business is really challenging, and everyone thinks it’s going to take three months and it takes a year plus, you know, it’s, it’s those types of things. So I have a business that I saw a few like, a year ago, and they were still on green screens from the 80s. And it was because they were afraid every year they would have the discussion, yeah, we need to put a new system in. And every year it was like, we don’t know how to do it. Who’s going to be the resource?
Jeff Malec 36:55
No, it’s just so it’s the old, how do you eat an elephant one bite at a time? Thing you’re just coming there. Like, all right, we’re going to we’re starting I’m gonna help you get through bite one, then we’re gonna do bite two. Oh,
Suzanne Yoon 37:07
and also, we have the resourcing behind us with the technology firm, you know, and all the resources that we have behind us and, and it’s, it’s experience. I mean, this is where, you know, being a private equity, you know, control investor is it takes a lot of time to learn what what we do, because you make a lot of mistakes to learn. And I will tell you that you know, along the way, all of us have in the in the private equity industry and and so have executives and managers. And so you get the right people who’ve gone through it before, who know where the pain points are going to be, get everyone prepared. And even with that, it’s painful, right? But sometimes new ownership is required to really make big changes.
Jeff Malec 38:01
Let’s talk private equity overall. Like, there’s been a lot of press that distributions have been paused or not happening over the last What is it, six to 12 months or even more? Um, what are your thoughts, in general, is that part of the process is that coming back, is this a new reality? Of like, what are your thoughts? Well,
Suzanne Yoon 38:22
I think it started. It definitely started with, anytime there’s any type of market disruption, people pull back on selling their businesses, right, or buying businesses. So that happened in early COVID. Then it came back, and then the interest rates went up. And remember, in buyout most private equity firms use leverage to buy companies. So valuation, so there was a mismatch of, you know, valuation expectations on, you know, it’s a, it’s a, the bid ask spread was, was pretty wide, I would say in 20, you know, three as the interest rate started going up because there was an expectation that the multiples would hold up even when going from zero to very significant interest rates, right? And so, and
Jeff Malec 39:12
where were those multiples were like getting upwards of 15x or depends what? Yeah,
Suzanne Yoon 39:17
it depends on the industry. But let’s say you know, you know, anywhere between, if a company was going, companies were going from eight to 15x they’re now going for, you know, the expectation from the sellers was, oh, that’s going to maintain. It’s that we’re still going to get that 8x 9x 10x and the seller. You know it’s like, you can’t afford as much when your interest rates like, not like anyone else, right? You even the consumer could, like, stopped. We stopped moving houses. Consumers stopped buying houses because they weren’t going to leave their 3% interest rate to buy another house. For 7%
Jeff Malec 40:02
I always say, so it’s like in the housing market, I always say people can just afford this, whatever it is, $3,000 a month payment. So they don’t care if that’s on a $6 million house with a 0% or point 10 bips or something, or on a 200k house with 18%
Suzanne Yoon 40:19
cash flow of business is ten million it’s still ten million whether or not your interest rate is 5% or 10% right? Yeah. And so that changes the dynamic pretty significantly in terms of return parameters, right? Because where you’re taking the cash flow to buy it down, like, how much can you afford in terms of add on acquisitions, like the whole underwriting changes. So the interest rate increase in interest rates definitely slowed down the market. We started to see some pickup. I think everyone was anticipating that the new year 25 was going to bring a resurgence of new deals to the market, people who had been holding out from, you know, 2324 like starting to come back. And then the tariffs were announced. And so just more recently, I would say, we were pretty optimistic going into 25 that the deal market would open up in 25 and that has been completely turned upside down with the tariff announcements. The magnitude of the tariffs and the and the, you know, potential tariffs, right, and widespread nature of them is creating a real jam. I mean, it’s margin compression is going to be huge, even with companies who do not have direct tariff exposure that are manufacturing the US, like the indirect exposure, like I’m, you know, I think you have to look at companies on a micro and, you know, everyone’s focused on the micro within their individual businesses and portfolios. But the reality is, it’s going to have a massive macro effect. You know, there were 80, I think last week was the first time I heard, as of last week, there were 80 full ships completely stopped coming out of China. And the last time happened, that was COVID. The
Jeff Malec 42:19
I was just on with a guy in Long Beach on a zoom yesterday. He was saying he’s a pilot. Actually, he flies for fun. He’s like, I’ll come out here. We’ll fly over Long Beach. There’s two ships in there. Remember, in COVID and everything was backed up, and there were like, 50 ships or 100 waiting to offload. He’s like, there’s two ships, and they’re just tankers. They’re not even container ship. And
Suzanne Yoon 42:41
the issue is going to be at some point we have to get there’s going to be a supply shortage, right? So I know with some of our portfolio companies, we bought inventory ahead, starting in fourth quarter, when Trump announced after that he was going to, yeah, tariffs. And so we have inventory, but at some point you run out of inventory, and then during
Jeff Malec 43:07
the manufacturing you have problems when you need, like, a specialized part or this or that. Um, I want to talk more on tariffs, but let me come back to the so on the distributions and whatnot, is that. So you’re saying there’s not another like you don’t have the ability to resell the company, which then you would pay out distributions or not you, but the industry in general, but then aren’t they also getting distributions on the profits of the companies? Or should be
Suzanne Yoon 43:33
yes, so it’s both. They’re just not at the at the pace right there that
Jeff Malec 43:39
people had been used to with all this deal activity, yes, and then the sellers want the eight to 15x in that period you were talking about, what were the buy what were the buyers offer? Like,
Suzanne Yoon 43:49
yeah, you’re probably at a turn to two turns down at this point. You know, I think people the the turn started to come, the multiple started to come down, I would say last year, slightly, especially in the deals that I’m that we’ve been looking at, but good deals still are, you know, demanding high multiples. And
Jeff Malec 44:14
what are the and those are greater than public multiples often these days, right?
Suzanne Yoon 44:19
Um, I think it depends, you know, because you use public comps, you know, we do look at public comps, there’s, there’s usually a discount to public comps, to some extent, because it’s private and the, you know, illiquidity, it’s like the illiquidity premium, right,
Jeff Malec 44:35
right? But that’s that’s been turned on its head. Of people are willing to pay right? Cliff, Asness calls it, volatility laundering, so they’re willing to pay more to not see the volatility in their returns. It’s kind of like so some of those stats were showing a premium, but that’s the hard part. Whenever someone’s trying to talk about private equity, right? Well, at large, right? Because you’re Midwest. The lower middle market is way different than someone doing whatever west coast.
Suzanne Yoon 45:05
And you know, it used to be too that you could really never sell a private equity position. But you’re seeing, I’m sure, in the news, right? Harvard just sold a billion dollar portfolio in the secondaries market because of they they need the liquidity if they’re not going to get funding federal. And I think that the same thing that’s happening with Yale and so all these big, big endowments that are that are moving out of private equity because it is illiquid. Why do people invest in it? It’s, you know, over time, it’s been the best performing asset class in, really, throughout history, and it’s because it’s long term. It’s locked up. It’s not, you know, it’s not as accessible as it has been. It’s starting to go a little more retail than it used to, with some of the larger firms, like Blackstone and, you know, Apollo, they’re a lot of the big firms are, you know, the people are getting access through our RIAs and classes into private equity, but it just was not like that before. So are
Jeff Malec 46:15
those who’s buying those big endowment positions like it
Suzanne Yoon 46:20
may be pension funds, other endowments, right? People who are looking at a very, very seasoned portfolio, and maybe they’re able to buy it at a discount, or get into funds that they could never get into before, because, you know, an endowment like Harvard or Yale are probably in all the deals and managers that are are very hard to get into. And so, you know, I would imagine that those portfolios were, were highly sought after if you have liquidity. So this is a great you know, I I think we look at this too in the private equity, in our in our space, if there are deals to be had, I think we also will see a lot of buying opportunity.
Jeff Malec 47:04
We had the CIO of Baylor on the pod couple episodes ago, but he was saying they’re kind of getting out of private not necessarily private equity, but less liquid stuff, because they don’t want the drawdowns. They don’t want to have the capital called because they see kind of a recession and the returns lower, and they want to put that to work at discount. So that was an interesting little tidbit from him as well.
Suzanne Yoon 47:31
And then it but it does cycle. You know, now a great time probably, to fundraise for private equity, but it will maybe again in 27 or we just don’t know, right?
Jeff Malec 47:42
But do you think so, right? Some, if you follow some people on Twitter, what a like private equity is broken. It’s too crowded, it’s too expensive. Can’t exist with higher rates. Like, that’s all bollocks to use a UK term.
Suzanne Yoon 47:58
Um, I think there’s real opportunity for it. I think the good managers are going to win out. You know that, and
Jeff Malec 48:09
you know, for you that drums back to like, I’m sitting in the room with this owner of this business, and he’s I can see the opportunity, right,
Suzanne Yoon 48:17
right? And so returns will speak for themselves. So I do think it’s but I think every I mean, do you look across the entire landscape of money management and it’s all crowded, right? Yeah, all crowded. So to say that private equity is crowded, I’m like, so is real estate, so is credit, so is dedicated.
Jeff Malec 48:39
Short selling isn’t so crowded. But yeah, well, yeah, wait, wait a little longer, but Right? That lends itself to the question. Like, then what do you do? But that’s you’re saying it’s all crowded. Like, just keep doing what you’re
Suzanne Yoon 48:54
doing. So in my view, it’s all relative, right? Like, do you really believe you have a differentiated enough strategy that you’re going to outperform your peers, because if you outperform your peers, then you’ll win. And
Jeff Malec 49:11
let’s talk more about that. So we started talking about the value creation piece. So it’s putting in general processes, or your processes and your team, like, is what you’re saying. Like, in order to win that, it can’t just be, hey, we’re gonna put everyone on Slack and make sure they’re using Google Sheets or whatever, right, like, right? It’s got to be your, your secret song, yeah,
Suzanne Yoon 49:34
I think there is, there is some fundamental, you know, fundamental business practices that need, usually to be implemented at company. The type of companies we’re acquiring because they’re founder LED. Sometimes they’re anywhere between, not always founder. Ed, but we’re usually the first institutional capital into a deal. So many of them are, you know, the founders are still involved, at a minimum, or we’re, you know, we’re acquiring after a period of high growth. And they’ve, they’ve kind of, you know, leveled out because they they can’t scale. So for us, it’s we have this, you know, mindset of, how do you modernize the business so that a business can scale so fundamentally, is it a good business? Is there an opportunity set for it to continue to grow? How do we, you know, how do we, how do we do that? And there is each portfolio company has its own, you know, certain, to certain degree, its own value creation, pro, you know, like thesis that we have and then executing that. And it could be a lot, but I would say the ones that come up very consistently is technology. Like, there’s a lot of there’s a lot of tech debt out in the world, you know,
Jeff Malec 51:11
which is surprising. I guess we’re on the front lines, maybe, but Right? Surprising me. Like, what are you talking about? Like, it’s in the news every day, and every ad is, use this tool, use that tool. But you’re saying not debt. They don’t not money, debt, just like technological debt, that they haven’t upgraded, they haven’t modernized,
Suzanne Yoon 51:30
right? And they may have, they don’t have cyber, they don’t have security, they don’t have right, like they’re just thinking about those things they have, you know, and it varies, you know, they’re still on QuickBooks. Like, you cannot scale a business, you know, past $30 million of revenue if you’re on QuickBooks. Like, it just, yeah, it’s like, impossible. So, you know, those are some of those things are, like, fundamental, and then for each business, there’s like, a unique right? So how are they using their data? Is there opportunity for, you know, tech enablement first and then AI can’t. Do you have to have the fundamental sound to be able to use artificial intelligence, but and also creating more efficiencies with artificial intelligence now, I mean, technology is moving so quickly, and I think that is, you know, one of the challenges that a lot of businesses have is tech moves so fast. How do you keep up with it? And so having a resource group like we do with our partners, clarity partners, which is also a Chicago based firm, you have 160 people in varying areas of technology and different functional areas that are in it every single day. So they help us keep up with it, right? So we have the resourcing behind us to be able to put our our, you know, value creation theories, or these, you know, our thesis to work for each portfolio company.
Jeff Malec 53:05
And do you think, how long till all of these, your portfolio companies are like, AI assisted, five years, 10 years like, Do you think that’s just going to be table stakes? Oh, I think within the year, within a year, okay, and that’s everything from helping do bookkeeping to inventory management whatever,
Suzanne Yoon 53:26
yeah, it could be different for each company, customer service, right, invoicing,
Jeff Malec 53:34
right? And the general thesis there, it’ll save time and cost, or it’ll help, right? Well, make productivity greater?
Suzanne Yoon 53:43
Yeah, no, the ultimate goal is productivity. Because if you can do twice as much with just the same number of people, yeah, right, or three times as much, that that’s a productivity gain, and then you can scale, and then you continue to grow and you can hire more people. So I don’t think about it in that way, like, oh, how many heads do you eliminate? It’s like, how do you make your heads more efficient so you can continue to
Jeff Malec 54:15
grow? And then I had another question popped in my head, how many founders are left out there? It seems like there’s 1000 private equity companies buying up all these founder led businesses. It seems like we’ll eventually run out of founder led businesses, but no way. I don’t know what the real numbers
Suzanne Yoon 54:31
are. No. I mean, I see them a lot. You know, they’re everywhere, and they’re not all founder led businesses. You know, they’ve transitioned to professional CEOs or family businesses, but I do think, like everywhere in the world, and I think particularly the United States, you know, it’s, it’s an entrepreneurial country, yeah, and I think even our think about our kids, you know, they, I. Think they think because they’ve seen it right, people have, like, made businesses out of nothing, and they’re used to being their own bosses, to some extent. So I do think there’s this. There will always be creation and creativity and new ideas. And in one thing I have learned in PE and credit and all the things I’ve done over the last multiple decades is that there are a lot of ways to make money. None of them are easy. Yeah,
Jeff Malec 55:33
right. I love those stories at a party and meet someone who’s like, oh, I ship hospital gloves in from China. That’s probably not doing so well now, but Right? You’re like, yeah, or we make the airplane the jacks for airplane wheel replacement. Or, like, weird, weird businesses
Suzanne Yoon 55:50
that are super cool, yeah, I mean, so many.
Jeff Malec 55:52
And are you agnostic? Or do you, like, do you want that smaller middle market and, but it does? It have to be manufacturing. What if it’s like, a, I don’t know, bakery or something.
Suzanne Yoon 56:02
I don’t know, yeah, so, um, so we say manufacture, manufacturing, manufacture products and business services. So we like things that are like making something or servicing something. So distribution, we know we have a one the large we have the largest consumable golf products distributor in the country,
Jeff Malec 56:24
consumable golf. So
Suzanne Yoon 56:25
think everything from everything you need to run a golf course, everything you need to play golf, not your clubs, but everything else, the tees, the pencils, the ball, markers, the glove, the like. Think everything need, right? Like we we supply all the accessories. We actually also are the on the distribution for click here, which is a push cart we have,
Jeff Malec 56:52
we own it. Oh, a click here. Yeah, I think so, yeah,
Suzanne Yoon 56:58
really, okay, I just got one for Oscar. Well, we, we own that. Nice,
Jeff Malec 57:04
if you want another when we Yeah, I’m calling you up when we need a replacement. Well,
Suzanne Yoon 57:07
when we come up with a new model, which is going to come out at the end of the year, which everyone’s really excited about, because all the pros, that’s what they use. They use the click your cart and so, so we own that. You know, we have a steel, a very specialized, like, highly, you know, engineered steel or metal tubing company that we, you know, just recently acquired. And, you know, that’s, it’s like, we say all things tubular. And we and then we have a lighting distribution and controls company that’s more of like a It’s distribution and consulting. So it’s a tech, tech, you know, lighting technology, consulting and distribution.
Jeff Malec 57:57
And that doesn’t even make sense. I hearing the words, but what is? What is lighting distribution?
Suzanne Yoon 58:01
So your office, when you go into your office, all the lighting in your office is most likely controlled by a system,
Jeff Malec 58:14
so, or even in your house, like control for whatever.
Suzanne Yoon 58:19
So there’s Lutron, there’s control for and so we do all of we do all like, so it’s headquartered in New York City, companies called Chelsea lighting. It is the largest lighting distribution distributor in New York City, and they do all the lighting for, you know, major projects. So the Google building, the Black Rock, Blackstone. I mean, KKR,
Jeff Malec 58:44
I’m going to New York in two hours on a flight, so I’m going to look, I’m going to look at the lighting when I get in the building.
Suzanne Yoon 58:51
Maybe we do it at RCM, right? So, yeah, um, but that’s a, it’s a very complex business because, you know, just to give you an idea. When we built the Google building in New York, it was 30 million of lights, just the lights,
Jeff Malec 59:06
and 30 million lights themselves, or $30 million for the lights, 30
Suzanne Yoon 59:11
million of dollars of lights, 12,000 skews, 1200 different companies that we had to source from,
Jeff Malec 59:23
come on, that seems like that. Seems
Suzanne Yoon 59:27
it was. But think of the project management of them, yeah, wow, right to spec. So that’s the kind of stuff they do and and they also know the whole control systems, which is the complex that’s also very complex. So you know, lots of different types of businesses out there and that that are needed to make all of our lives work,
Jeff Malec 59:52
yeah, but that’s the cool part to me, right? You didn’t you’re not sitting there at home thinking about lighting distribution, right? I. Like, how did that come across your radar, so to speak,
Suzanne Yoon 1:00:02
so lots of relationships that were built over 25 years and people knowing, you know what, what, what I what I do, what I know, what our firm does. So we saw that from a regional, I would say, investment banker, broker, that was looking for a buyer for the company. So a lot of the companies that we’re acquiring are either sourced through our network, for you know, they’re either proprietary through our network, and it could be from you might have a buddy that, yeah, exactly exit right, and or has a sick parent or, I mean, like, there’s so many reasons why, you know, sales have to happen, and sometimes they just want to happen, right? Because it’s a good business, or someone need wants to do more, add on acquisitions and grow their business, but they don’t have enough capital, so they need a capital partner. So it could be your buddy. It could be that the the the actual like sell side network, which is investment banking, all the brokers like nationally that are that are hired to sell businesses like we were really tapped into them as well. But I see deals everywhere. Yeah, it’s like our, you know, we’re constantly looking that’s why I’m surprised to everyone. That’s the other thing I tell you, nice to everyone. You never know. But,
Jeff Malec 1:01:27
and that’s a weird spot, my experience is, like, if someone’s bringing me a deal, usually I’m like, like, by the time it gets me, is it? Is it a good deal? But so you probably, how many do you see, and then how many do you settle on?
Suzanne Yoon 1:01:40
And by the way, that that is really critical, right? This is why, why investors invest with firms like Kinzie and us, yeah, because we see a lot of deals to close very little. So to give you an idea, we see probably an average of about anywhere between 900 to 1200 deals a year, and we will close one or two. Wow, so that’s
Jeff Malec 1:02:06
you’re on a zoom 17 times a day. Well,
Suzanne Yoon 1:02:09
not me, but that’s why we have a whole team. Yeah, yes, but yeah, yeah. Probably, we’re probably doing 20, you know, Zoom calls, in person, meetings, we’re flying all over the country. We’re we’re at conferences, we’re meeting with people. We’re doing whatever we can to source, and then we have to assess them and get down to the final so that is one of the reasons why I think the sourcing is really critical in our business. It’s not, you know, you have to turn over a lot of stones and get to the fishing pond first, you know, before everybody else gets there. And how do you do that? And look for ways to be resourceful. That’s what I think about a lot. Actually, I also do about my lighting distribution business, and once we own them, you think all the time, but that’s where I spend a lot of my time. How do we source better companies and and see proprietary deals where there’s less competition?
Jeff Malec 1:03:16
Yeah, that seems right, if it’s just on pitch book for the rest of the world to see.
Suzanne Yoon 1:03:21
Yeah, and then the relationships, like, even if it’s not proprietary, right, what’s really important, it’s, do you have the relationships with the bankers, the lawyers, the and then can you establish a relationship with the seller so that they want to sell the business to? And how do you, you know, make sure that you’re being authentic and genuine, and the culture fit is there? I mean, all those things matter. So I always well, even if it’s not a proprietary deal, we’re always looking for a proprietary angle.
Jeff Malec 1:03:55
The founders have a what’s their general feeling towards private equity, like a lot of them, as you said, they’re like, oh, it should be paid 15x but then there’s probably a few that are like, well, you’re just going to put debt on this company and and run it into the ground. No thanks. So
Suzanne Yoon 1:04:08
there’s various degrees of private capital, right? A fund like ours, we’re very transparent. Our goal is to exit a business within five years and triple our money, right? And during that time, that’s our goal, yeah, on an episode, you know, like, I tell my guys, like, if, if the work and the effort that we’re going to put in doesn’t look like we have a good shot at that with a real path, like, it’s not worth it because we’re putting a lot of effort and time into these companies, so we need to have at least a shot at really get to
Jeff Malec 1:04:48
and you have investors, they weren’t returned, right? Yeah, 100%
Suzanne Yoon 1:04:52
and that’s how we’re gonna keep our investors and gain new ones, right? So I think you know that. Always, like always, you know, at the kind of forefront for me is, you know, how do we, how do we make sure that we’re hyper focused on returns? And in order to do that, you’ve got to, you’ve got to have a differentiated strategy, you have to have the right resourcing. You have to be thinking about value creation in the portfolio companies, especially today, in a high interest rate environment. And then, you know, it’s again, you know, the i The good news is it’s all relative. So if we outperform the rest of our peers, and we’ll outperform the rest of our peers, but I still would really like, for my own capital sake, also to get to,
Jeff Malec 1:05:42
yeah, return.
Suzanne Yoon 1:05:44
Not that I will. But, like, you know, it’s like, caveated, but that’s my that’s my goal.
Jeff Malec 1:05:49
Yeah, that’s the old saying goes, you can’t eat relative return, right? Awesome. Suzanne, I think we’ll leave it there. You got any last thoughts for us?
Suzanne Yoon 1:06:00
No, it was really fun. It’s fun talking to you about this. I know we never really get to talk about work the real world. Yeah, we’re always talking about our boys,
Jeff Malec 1:06:10
so that’s more fun, actually, but, yeah, but this was fun as well.
Suzanne Yoon 1:06:11
All right, thanks so much. Bye.
This transcript was compiled automatically via Otter.AI and as such may include typos and errors the artificial intelligence did not pick up correctly.
