Building a Value Creation Machine & Scaling a Private Equity Firm

🎧 Episode Summary:
In this episode, Alex Rawlings speaks with Chris Sznewajs of Pacific Avenue Capital Partners about building a private equity firm focused on complex corporate carve-outs and businesses owned by “unnatural owners.” Chris shares how Pacific Avenue identifies overlooked assets, drives value through operational focus, and recently expanded into Europe with a team-first approach.

He dives into the lessons from building out their Paris office, the firm’s unique deal sourcing strategy, and a case study involving a complex carve-out from Total Energy. Chris also unpacks their value creation model, why they invest heavily in operational talent, and how they maintain culture across borders.

⏱️ Timestamps:

00:00 – Intro to Chris & Pacific Avenue
01:28 – Key mistakes in PE & portfolio strategy
03:52 – Why Europe? Lessons from expansion
05:47 – Building and integrating cross-border teams
10:57 – Defining “complex transactions”
12:24 – Total Energy carve-out case study
15:17 – Proprietary sourcing via corporate relationships
17:25 – Investing in ops: value creation strategy
20:16 – How their ops team is structured
22:45 – Chris’s interests & offer to connect

💡 Key Takeaways:

• Focus on carve-outs and “unnatural owners” enables deep value creation.
• Expansion to Europe was led by people, not just strategy.
• A proprietary sourcing approach is key in competitive processes.
• Ops team = generalists with deep business acumen who partner with management.
• Carve-outs require patience, resources, and a consistent strategy.

Raw Selection partners with Private Equity firms and their portfolio companies to secure exceptional executive talent. We focus on de-risking executive recruitment through meticulous search and selection processes, ensuring top-tier performance and long-term success.

🔗 Connect with Alex Rawlings on LinkedIn: https://www.linkedin.com/in/alexrawlings/

🌐 Visit Raw Selection: www.raw-selection.com

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Transcript

00:00
Welcome back to the Royal Selection Private Equity Podcast. Joining us today is founder and managing partner  of Pacific Avenue Capital, Chris Snevice,  a private equity firm located out of Los Angeles  and operating across Europe, but based in  Paris.  Interesting private equity  conversation, discussion, their work in the portfolio, their work on what they regard as complex transactions.

00:29
predominantly carve out, but also diving into the decision making around the growth of the private equity firm and the decisions made around whether to go to Europe, how to go to Europe, how to expand geographically and going in their very niche avatar of the place that they invested. Let's dive in. Chris, if you could share with us a brief insight into you, Sure. Well, nice to spend some time together, Alex. Maybe I'll just start personally. I am married.

00:58
And have four children.  We live in Southern California, which  is where my business is, Pacific Avenue Capital Partners,  where the vast majority of our team is  as well. m We've been ah out here in Southern California for the last 12 years and um big, four boys. we're very, very big and active in the sports,  both watching them participate in family and business. That takes up the vast, vast majority of my time. Perfect.

01:28
With regards to,  well,  for you and the portfolio companies, what are the mistakes that you see either private equity firms or portfolio companies making and what would you suggest to correct them? Yeah. So for Pacific Avenue, our model or strategy approach is predicated on a  simple concept, which there are individuals and or corporations that own businesses.  And they've made a strategic decision not to own them anymore.

01:57
And the term we use is unnatural owner.  And uh as a result of  oftentimes businesses being unnatural owners, and obviously as a result motivated to transact, um it allows us to step into situations where we see, wouldn't necessarily call them mistakes, I'd call them a lack of prioritization.  And because they're not the right owners,  they choose not to own it,  they haven't prioritized correctly inside of the business that we're buying.

02:26
I would say the number one thing that we focus on em is prioritizing and aligning around the most important things that the business needs to be doing. em And  oftentimes what we see is  with the best of intentions, businesses are doing a lot of different things. Many of them are not making a difference in terms of creating value. And so first and foremost, let's agree on the two or three very simple things  that we need to get done to create the most amount of value.

02:53
And then the second thing,  and frankly this happens quite a bit in corporate investitures or carve outs, the incentive structure is not aligned to correctly.  And so you have  individuals, team members within the business that we're buying that even if they do all the right things, they may not be rewarded for it.  And so our goal  is very simple. Let's align and very clearly  agree on a strategy.  And then two, let's make sure that if we execute appropriately on that strategy, folks are rewarded.

03:23
accordingly. ah And so I guess the mistake that we see is they're doing too many things or they don't have a clear strategy.  And even in the situation where they may or certain folks have a clear view, they're not rewarded for that. And as we can all imagine, if you get to a spot where you're not rewarded over time, you're disincentivized to do things  that create value. And obviously that's  the antithesis of what we're trying to do, which is create as much value as possible for our  investor group.

03:52
You mentioned in the European Gambit, most of your team is based in Los Angeles. You guys have obviously, or you've made the decision to expand the firm outside of the US and into Europe. What inspired that firstly? And secondly, what are some of the lessons you've learned from operating on this side of the pond? Yeah. For us, and  it probably goes back to the point I just made, it's about focus. So at Pacific Avenue, we believe we're the best position to buy from unnatural owners. uh

04:21
We think how we source deals is unique around that, how we execute those complex transactions. Then ultimately what we say is how we persecute them or prosecute them, which is uh what we do when we own them.  And if that's our core, that's what we're good at. The question is, is where else do we go  and how else do we do exactly what we're good at?  Geography was the first on the list.  so Europe is something  that we launched  a little over a year ago.  We'll talk about some of the.

04:51
positives there and some of the challenges. em think sticking with our core,  there are some industries  where  we don't cover well today, em which we'll continue to go after.  And that'll allow us to stay exactly within who we are  on natural owners and use our capabilities. And then ultimately we'll move up and down  the value chain, meaning we'll do bigger deals and we'll do smaller deals, but again, very consistent with who we are. So we chose Europe first because we thought it was the most  close in adjacent.

05:21
We can do the exact same type of transactions in the exact same industries uh with very similar uh equity check size to what we've been doing.  And so the way we started is it came down to people. um Ultimately, we are in a people business. We think we've got a great strategy, but to execute on that strategy, you've got to have  a very good team.  And so  we built around uh an excellent team.

05:47
um I think we're eight or nine folks now over in Europe will continue to make some substantial additions so that we've got full scale over there.  But that's the rationale. We believe the market, and it's proven true,  about a third of our pipeline  is in Europe. It's a robust opportunity for unnatural owners,  and we think we can execute on it. So in terms of mistakes,  I think for me, I'm an impatient person.  My expectation was is we could build it faster.

06:17
Um,  and the team has done an outstanding job building, uh, a very high quality group of individuals. would have loved to have done in six months instead of 12.  Um, so I think allocating the right amount of time, uh, is important.  We also have to make sure the Pacific Avenue culture, uh, we believe is unique to private equity. Uh, we're very collaborative,  uh, direct feedback. um

06:43
I wouldn't say it's a mistake, but we've worked very, very hard to ensure that  there's overlap in culture. We're certainly sending  core resources from LA over uh there to support the team.  We've got uh effectively a program where we're interacting, obviously,  multiple times a week  with that team. And then um we're seeing folks in lending, whether it's capital market resources, whether it's sourcing business development resources or execution resources.  And we're...

07:11
seeing each other at least every other month uh in person,  sometimes here, sometimes  over in Europe. um the biggest piece for us is it does, it's like starting a business. uh When we start at Pacific Avenue, it takes longer than you want. uh It all comes down to people  and  you have to be consistent around ensuring the culture and the strategy is  maintained  so that we have consistency across our offerings, regardless of geography.

07:42
Perfect. And um you mentioned  that you  had that kind  of of culture and moving that across and that being really important. It's actually something when we do the reverse move and we go uh from Europe  to the US and that's something that we talk about and we've probably got a plan where we're going to take two people over  and base  them in Florida to  really build from our culture because we believe uh that that is also  our unique

08:12
our unique offering, um, in the most part. What did you guys do on that strategy? Did you take people from LA to Paris and have them as conment is the person is relocated out there personally? How did you start that momentum alongside obviously the stuff that you're doing now, as you mentioned? Yeah. So we, for us, it, came down to who was going to lead,  uh, us in Europe. we, spent,  uh, the better part of 18 months finding the right individual who had.

08:39
the experience that we needed  doing a lot of corporate investors and carve outs, understood the relationship of working with a North American based firm,  and then was able to spend time with us here in the US  to get a better feel for our culture.  We've had  multiple, I'll call it mid and junior level folks who've done rotations over there anywhere from two months to five or six months. um And ultimately I would expect, and  you we're

09:07
as a growing firm continuing to build our  bench, would expect  we'll cross pollinate  at the VP and associate level where they'll dedicate resources to us,  one or two, and we'll uh complimentary  do the same thing back  to ensure that there's connectivity  and uh overlap across the teams. And  what made you specifically choose Paris as a location amongst any other European country?

09:37
Yeah, so  we have individuals,  the head main office there is in Paris, we have folks in London  as well as Switzerland. It's a pan-European  strategy,  but it ultimately came down to the individual who leads it was in Paris, and so  we've got a group there. I would expect in the next six to 12 months, we will have uh a core team as well in London.

10:00
We've already have a resource there  also but Paris was all just the result of the the individuals that we hired and we  came across Makes sense makes a get a post person and they they dictate where the where the pin goes in the mouth. Yeah.  Yeah. I understand that Sorry to interrupt just a quick mention of a long-standing partnership with Grata as you will probably know the private equity scene is constantly evolving and Deal flow is moving now to

10:28
proprietary and data-driven processes. Grata provides you with the data and information of over 7 million private companies. So if you're looking to improve your proprietary deal flow and improve the data access, then reach out to Grata today. Now back to the podcast. So on your website you referenced earlier the kind of complex transactions, complex situations. Is that purely down as you referenced as unnatural owners  or

10:57
What exactly does that mean in a Pacific Avenue capital framework? it means to us, the term on natural owner  is  the right term, but what it means to us is that the  individual or entity that owns the business  no longer believes they should own it.  Maybe they're being transitioned. They may not have uh children that want to run the business and they've the current

11:26
ownership or family uh knows that they need  to vest it. it's  rooted in um that  desire that the seller is motivated to transact because ultimately uh they don't want to or can't own it anymore. um The complexity comes because in many of those situations uh there is an element of complexity. A forced sale because of the Department of Justice antitrust reasons comes with

11:54
its own set of complexity.  A founder run business that may not come with a management team uh has a different set of complexity.  that's the complexity that we're seeking. um We're big believers that if we can break that complexity down, oh and have the infrastructure to support it  with our operations team, that allows us to  be  differentiated  and capitalize on that complexity and ultimately create value out of it.

12:24
Obviously given those types of investments,  describe with us  one example of one of the more challenging investments that you guys have turned around and turned into a big win. Yeah.  So every,  we somewhat joke,  almost every deal at Pacific Avenue is a bad country song. It's got a long story around it, but  maybe one that I'll reference is a bit of a  cross uh ocean deal,  total energy.

12:53
Obviously a large French energy major was selling an asset. um Very complex transaction. It didn't come with the management team at all. um We had to hire over 50 individuals to stand up the business. um It also had three distinct product lines. uh One of them that ultimately our view was not viable. Asian imports had wrecked that market and  even at the gross margin level, we couldn't be positive.  so uh inside of all of that, we also had to carve out a business. had to build

13:22
the sales team, had to  build the financial systems um and we  had to build all the infrastructure uh to create uh an entity.  That  was a 12 plus month journey  that we went on in terms of building out the management team, building the team, building the backend infrastructure  and ultimately the front end infrastructure  all in process while we were um restructuring parts of the business.  Other parts of the business received

13:52
heavy investment in the areas where we felt we had a differentiated uh advantage and that's proven to be fruitful for us.  And so that was for us very complex. Ultimately, it will be a very strong returner for us,  but not one.  It's one that frankly used the entire Pacific Avenue model. We sourced it in a unique way. The transaction, the execution of it took over 12 months  to get the deal done with Total and some of the complexity that

14:20
that they have on the corporate side. And then  as I mentioned, the carve out itself and standing up the business was another 12 months. these are not for the faint of heart,  these types of transactions and the resources required. But if you get it right, we think the returns are  certainly differentiated. And  that is what our entire portfolio is made up of, of deals like that where we're not distressed investors. We're not looking for underperforming businesses, but we're looking for businesses that

14:48
haven't had the investment or the resource because they're non-core or non-strategic. And this was a good example. It was a very good business, uh some very good products,  but didn't have the infrastructure or the resources to support it. If we could get that right, we could win. And  we found that across our portfolio. There are diamonds in the rough that have been  under-managed or not managed  because of different priorities. And if we can  unlock that value,

15:17
Obviously it's great for our investors, it's great for the company, it's great for the team members at our company. um The term we use is we've liberated them to let them go  and then obviously we share in that offside value creation. It gets back to my incentive point earlier uh and a large amount of wealth creation can be created for the entire team  as well as our investors. You mentioned the deal origination of that was unique. that a kind of a...

15:43
Fortuitous outcome type unique or was that something you did kind of invested in it? Yeah. bet fruit. Yeah, because we're  the vast majority of what we do are corporate divestitures and carve outs.  We found it imperative.

16:02
direct relationship with corporate sellers is critical. Corporate divestitures, they may not go as broad in a sale process because they're either sensitive to it being made public, the diligence required is quite a bit more in times because of the carve out. And so they don't necessarily go out to 50 or 60 or 70 private equity firms or other potential buyers. They may only go out to 10. And the 10 that they choose is a direct

16:31
function of who they have relationships with. And so we built a proprietary database. I believe it's up over 34, maybe 3,500 public and private companies where we're touching, talking to multiple times a year so that they're aware who Pacific Avenue is when they ultimately divest something and they're presented with a buyer's list from the investment bank. saying, yep, we know Pacific Avenue. Let's include them as one of five.

16:58
that gets the opportunity to play in this process. that's critical to us because obviously if we're not in the process, we can't buy the business. So you guys, obviously you founded the firm and you built the organization, taken in the right strategy, you've expanded into Europe and made critical decisions. One of the decisions you have made is to build a large value creation team to focus on that, references on your website.

17:25
What made you as the founder decide on that investment in that area outside of the kind of traditional deal team does everything model? Yeah. Yeah. So I have a bit of a unique background  for private equity. um Out of  undergrad, I worked in what's called transaction advisory group,  really doing quality of earnings work and other M &A work, but from a technical accounting background.  I did some restructuring after that and went to business school.

17:54
And after business school,  I went to Bain and Company on the operating side.  And we,  and I helped build a practice that was focused on creating value in private equity firms, portfolio companies.  And it was not a balance sheet driven exercise or capital driven,  capital structure driven exercise. was purely income statement. How do we make this business more profitable?  And  many of the operational techniques that we learned and I developed at Bain alongside my

18:23
Partners and colleagues  are the foundation of the playbook that we have at Pacific Avenue. And so uh we believe it's paramount to winning now  and creating the most amount of value. Look, private equity is competitive. And so there's a lot of different levers that need to be pulled to maximize value. And you've got all sorts of firms. are buy and build, and some are value investors, and some are operationally focused. And there's a whole host of other levers.

18:52
Our view is we're not good enough to just pick one. We need to have all of those. um And the operations team allows us  to create value across our portfolio. um One of our key tenancies is if you're an unnatural owner, oftentimes you're not allocating resources appropriately and you're under investing and therefore the business is underperforming. um not, again, not distressed, but underperforming. so having a playbook, having an operational team,

19:21
where we can standardize some of our outputs  and  value creation plans is paramount to our success. It's very hard to contemplate, do you make money on kind of your multiple expansion or do you make money um on EVITA growth? uh Our view is it's about 50-50 across our portfolio depending on how you look at it.  And so if we want to have outsized returns, we've got to have a real dedicated focus on the operations side.  And it's  paid dividends for us.

19:52
And how do you structure that operations value creation team?  And what I mean that, mean, we see firms that do it from a  private equity back, chief exec, CFO coming in. We see teams that go down the consulting route, obviously your history, but then we also see the specialist route of somebody who's a specialist from a CFO perspective and finance the operations and go to market. How are you guys structuring it?

20:16
Yeah, we've looked at them all. As I mentioned, I have an operating background.  When I left Bay and I went to the operating group at another private equity firm,  what we have ultimately decided is a couple of things.  We believe that  the most important value creation lever is the management team. Okay, so we're never gonna run our businesses for our portfolio companies  and getting in place the right management team is critical.

20:41
but we can support them in a number of ways.  First and foremost, the carve out is not a skill that all management teams have.  And so we... m

20:54
you could have pricing person.  don't, because we're cut across, we're looking for a deal type, the unnatural owner.  We cut across a lot of different industries and  we have discomfort in, even if we have a supply chain person, they may not be, if they're great in aerospace, they may not be  great in something else uh industry that we're in. And so we've shied away from that. And what we hire is  generalists who have great business acumen, who can partner  and be  a,

21:23
collaborator with the C-suite  and they can help  determine the key value creation levers. And then the last piece for us of our value creation team or operations team is we buy businesses sometimes without management teams. And so we need to have a group of folks that can step in in the interim  and  keep the trains running. They may not uh be  the perfect CEO, but they can absolutely keep things moving forward. And so our ops team carve out focus.

21:52
value creation focused from a general's perspective, partnering with management, and then in the need where we don't get a management team with the sale. Our belief is those cut across industries pretty cleanly. The areas that are higher up on the P &L and on the revenue side are on the cost of goods sold side. We don't believe adding that specific infrastructure.

22:18
uh, makes sense today at our scale. That may evolve as, as obviously we get, we get bigger and build depth around certain sectors. What do you read, watch, listen to, do you recommend that others check out please, Chris? Yeah, I'm, I'm a pretty boring guy.  Um, I, I almost watch no TV other than, than live sports. Um, I, couldn't tell you the last streaming show I watched. in, terms of reading, I am a, uh

22:45
pretty  focused  on a couple of different areas. uh First and foremost, uh

22:54
in and around China, the economy,  the government there, uh and how it functions and operates.  And so if I'm laying in bed, then I go to bed pretty early, but at nine or nine thirty at night, that's uh our website's pretty robust. You can get a full link to my email and my contact information,  but just email me.  I get a  significant amount of general outreach. do  my best to get back to as many  folks as possible.

23:22
But obviously if it's a deal  or if it's just career advice or  anything else, I'm happy to give my two cents  in what I've learned as I built Pacific Avenue.  Well, thank you very much for coming on to the Productive Podcast and sharing everything you have done, Chris. Yeah, thank you, Alex. Appreciate the time. And as always, thank you very much to all our listeners. Till the next time, keep smashing it, and thank you for listening.