As growing businesses reach their objectives, larger questions can often arise about the next big steps to take. Should they take the company public? Sell to private equity? Or perhaps make a deal with a strategic acquirer?
Decisions such as these don’t come easily.
To demonstrate the thought processes behind the complexities of these real-world business issues, Commerce School alumnus and McIntire Foundation Board Member Josh Paulson has been visiting his alma mater and students in Professor Felicia Marston’s Private Equity course. He’s been sharing a Harvard Business School case study (“Interline Brands: Don’t Stop Believing”), which was written detailing his own experiences. Paulson has also taught the case with Interline executives to students in the MBA program at HBS, of which Paulson is a 2005 graduate.
Early this semester, Paulson, whose firm, P2 Capital Partners, invests in public and private companies, came to Marston’s class for the fourth time in recent years to discuss a deal brokered with Interline Brands, a national distributor that provides maintenance products and services to the apartment, educational, and healthcare facility markets. P2 was attracted to Interline, as it was a market leader with a stable revenue base in highly fragmented markets with above-market growth opportunities led by an excellent management team.
Paulson explains that Interline was a great company that has become out of favor in the public markets and found it challenging to make the necessary investments for growth as a public company. As a result, he proposed taking the company private to then-CEO Mike Grebe. As P2 owned 8% of the public shares of Interline at the time, he suggested they buy the entire company with a private equity partner at a significant premium to accelerate growth in a private context. And grow Interline they did. Then, they were in a position to sell the company—if they wanted to, that is.
“That’s really what the case talks about,” says Paulson. “The history of the company, our involvement as a public shareholder, the approach to take the company private, and what Mike and his team achieved as a private company. Then Felicia spends time with the students, saying, ‘Now that you’ve achieved these growth objectives, should P2 and its partner exit the company, and if so, how?’ Then there’s a really robust discussion,” he says about the company that was successfully sold to The Home Depot.
Marston says the students were incredibly engaged with the case. “This made for a rewarding experience for everyone, including me as a professor,” she insists, noting that the Interline case study offers the opportunity for students to consider different perspectives beyond what might be considered typical leveraged buyout deals. “For example, [the case discusses] public versus private markets, how CEOs negotiate in both markets, Josh’s participation as an investor, and more,” she says.
Paulson says that the students get to hear the viewpoints of both P2 and Interline. “A lot of times, you’ll hear the perspective of an investment firm, but getting to hear directly from the management team brings the full picture to the students,” he says.
Though Grebe was unable to attend the most recent session, he says that he always looks forward to the experience at the Commerce School. “First and foremost, I enjoy the passion of Professor Marston leading the class; she is adept at drawing out the best from her students. I also enjoy the energy of young leaders taking in the small insights we are there to offer,” he says.
What Paulson shares has proven essential. “One of the many benefits of having alumni participate in our class is that they are able to offer the wisdom that comes from experience in ways that I cannot,” Marston says.
It Comes Down to the People
Paulson says that the biggest eye-opener for students ultimately concerns the management team involved: “The case reminds me of the biggest lesson from John Griffin’s (McIntire ’85) class [The Analyst’s Edge, which Paulson took as a McIntire student]; it’s all about the management team that you’re backing in an investment. That’s one thing that really comes to life in this case: If you’re trying to change the operating results of a company as an investor, it’s not just about how good the CEO is, it’s about how good they are at motivating thousands of people and making a judgment on that,” he says, explaining that it also connects to the company culture and the ability to navigate ups and downs.
Grebe says that while anyone can supply capital, you need someone who can weather the difficulties: “Things go bump in the night. At 4 a.m. Starting in a far-away country. It is at those moments you fully appreciate who has your back in a foxhole. Anyone can stand by you when things go well. You must choose a partner who will be there for you and the company when times are challenging.”
He adds that Paulson taught him “to underplay achievements and become a nicer, more likeable person. You want to partner with someone who knows how to have fun and does not take themselves too seriously. Teammates will follow that kind of leadership.”
An Essential Day’s Learning
Vic Lin (McIntire ’24) was surprised to learn that P2 adopts a private equity investment approach with public equities and was similarly intrigued by the details of the close collaboration it took with Interline in the case study. “This nuanced relationship dynamic not only provides valuable insight into the investment proposal but also sheds light on the intricacies of relational dynamics within such transactions,” he says.
Jamie Morrison (McIntire ’24) was also fascinated by the intricacies of the deal process. “A standout takeaway was the comprehensive approach taken by private equity firms when exiting, considering the interests of all stakeholders involved,” she says. “Paulson’s narrative illustrates the importance of collaborative engagement with management teams, prioritizing mutual goals over purely financial gains for limited partners.”
Sam Slaymaker (McIntire ’24) found the case study session engaging and a singular educational experience. “It gave our class a look inside the mind of a high-level dealmaker and walked us through a really unique interaction with Interline that spanned multiple transactions and faced different obstacles,” he says. “Josh’s experiences at P2 are really unique and unlike anything else I’ve learned about in Professor Marston’s Private Equity class or any other McIntire class, so I really enjoyed getting to understand his and his firm’s philosophy and process through the lens of a real transaction.”
For Paulson, interacting with Marston’s classes is “always one of the best days of my year,” he says.
“I’m always so impressed by Felicia and the McIntire students. You almost forget that these are college students. It feels very much like HBS in terms of the energy in the class, the thoughtfulness of students’ responses,” he says, as he and Grebe have also taught the case at HBS. “The McIntire students have great familiarity with the private equity industry and a variety of the soft issues involved with running and selling a company.”
Paulson returns to McIntire with the intent of imparting the same level of impact that guest speakers and their experiences had on his own education. “Had it not been for John Griffin’s class, where we were introduced to the world of investing with case studies and real-world speakers, I may never have realized how passionate I was about investing. My hope is that by teaching the case, we can do the same for current students,” he says.
