In the insightful fireside chat hosted by Giovanni Amodeo, David Chung, Partner and Co-Chief Investment Officer at HGGC, delved into the nuanced world of take-private transactions in the middle market. With over 29 years of experience in the industry, including a foundational stint at KKR, Chung brings a wealth of knowledge to the table.

Key Topics Discussed:

Introduction and Background: Chung outlined his role at HGGC, a Palo Alto-based middle market private equity firm with $8 billion in assets under management, focusing on sectors like technology, business services, financial services, and consumer sectors.

Evolution of Take-Private Transactions: Chung discussed the shift in take-private strategies over the years. He emphasised HGGC’s unique approach of viewing public markets as an alternative sourcing ground for potential acquisitions, particularly targeting public market orphans—temporarily undervalued or misunderstood companies.

Identification and Engagement Process: Unlike typical private equity approaches that rely heavily on personal networks and bankers, HGGC prefers direct engagement through investor relations channels, allowing them to understand companies in their “natural habitat” and build relationships over time.

Signals and Triggers for Action: Chung highlighted the importance of long-term stock price depression as a signal, indicating potential fatigue from being public, which might make a company more receptive to a take-private proposal.

Challenges and Competitive Landscape: Addressing the competitive nature of take-private deals, Chung noted the necessity of navigating board dynamics and managing multiple stakeholders, including advisors and other interested parties.

Success Stories and Investment Philosophy: He shared success stories like Monotype and RPX, where HGGC identified and capitalized on unique opportunities not well-understood in the public markets, resulting in significant value creation post-acquisition.

Investor Perspectives and Brand Perception: Chung concluded by discussing HGGC’s brand perception as a deeply committed partnership investor, which has been crucial in establishing them as a preferred buyer in competitive deal environments.

Throughout the chat, Chung provided a comprehensive view of the strategic, operational, and psychological nuances involved in take-private transactions, particularly in the middle market, highlighting HGGC’s differentiated approach and success in this complex arena.

Key timestamps:

00:09: Introduction
00:30: David Chung’s Background and Role at HGGC
01:13: HGGC Overview
01:33: David Chung’s Experience in the Business
01:56: Take Private Strategy
04:34: Approach to Identifying Companies for Take Privates
07:38: Initial Meeting and Questions
08:59: Signals for Actionability of a Deal
09:51: Convincing Companies to Consider Take Private
12:17: Addressing the Mismatch in Public Markets
13:26: Engaging with Management Teams and Advisors
14:32: Preventing Leakage and Intermediaries
15:44: Opportunity Generation and Addressable Market
18:05: Challenges in Identifying Quality Businesses
18:30: SPAC Phenomenon and Take Privates
19:11: Hidden Gems in the Public Markets
21:57: Investor Pushback on Approach
22:54: Challenges of Take Privates
23:36: Comparison to Private Markets
24:10: Skills for Take Privates
25:31: HGGC Brand Meaning
27:13: Conclusion