Ben Gaw: Cross Rapids Capital Co-Founder on the Essential Role of Operating Partners in Value Creation

Ben Gaw embraces the chance to address complex challenges head on, approaching them with passion, grit, and determination. His pursuit of unleashing organizational potential is fueled by a deep-seated belief in the transformative power of leadership and operational excellence. This conviction is the cornerstone of his distinguished career in the private equity industry.

In 2021, Ben took the bold move to co-found Cross Rapids Capital, a private equity firm focused on middle market industrials and services companies in North America, where he today serves as head of portfolio operations and investment committee member. The firm has already executed three current platform deals, with momentum brewing.

Before embarking on his entrepreneurial endeavor, Ben rose to prominence inside two of the world’s leading global private equity investors, Advent International and Platinum Equity. Like many operating partners, he came out of the transformation and restructuring space, having spent five years with AlixPartners tackling business turnarounds and performance improvement projects for underperforming and deeply distressed companies.

On this episode of the Brilliant People Podcast, Linnea Jungnelius, Global Head of Marketing & Strategy at Acertitude, sat down with Ben for a conversation on how he pivoted from working at some of the largest PE firms in the world to co-founding his own fund, what’s next for the operating partner role, and the sweet spot for private equity – the middle market.

Linnea: Ben, the middle market represents two-thirds of total U.S. PE deal value. As you set out to form Cross Rapids Capital, what made this space attractive, and what was the white space you looked to fill?

Ben: There’s a song by The Byrds titled, “Turn, Turn, Turn.” The song basically says everything changes and there’s a time to every purpose. So, it’s always about timing. After having spent over a decade at very large PE firms, the time seemed right. If I didn’t do this, I would always wonder.

The founding partners of the firm all started out at very large PE firms that were once upon a time small, but have since grown to become mega funds.

For example, when I joined Platinum Equity as Senior Vice President and Head of Portfolio Operations for Asia, they were still investing out of Fund II and that was $2.75 billion of committed capital. Sounds big, but they were solidly middle market at that time. They're currently investing out of Fund V with $10 billion. Looking at their most recent press releases, they’re doing very large cap deals.

The next firm I joined, Advent, had an even bigger fund. When I joined as Senior Director and Head of Portfolio Operations for North America Industrials, they were investing out of Fund X, which is $25 billion in committed capital. Large cap deals, in my opinion, are a lot more competitive with significantly higher entry multiples.

When my current colleagues called me back in 2020 to gauge my interest in starting a new PE firm focused on the lower middle market, I didn't hesitate. Small and medium-sized businesses are still the backbone of this country. There are thousands of companies that are founder-owned and managed and where a PE firm will be their first institutional investor when the owners start looking to diversify their family balance sheets.

It's an exciting space. Out of the three current platform deals we have, one we acquired from founders. It's pretty exciting because when you're the first institutional investor, from a value creation standpoint, the sky's the limit.

Linnea: Going out on your own is both incredibly rewarding and a lot of work, which I know you’re not one to back away from. Walk us through your decision to pivot out on your own after spending close to a decade with the large funds you mentioned, Advent and Platinum. What’s the experience been like?

Ben: I consulted with my very supportive wife, Fran, talked with a few colleagues, and then the other factor was the team fit.

One of my co-founders was Head of Industrials at Centerbridge, and the other started her career at Centerbridge before moving on to become a Principal at Carlyle's Equity Opportunity Fund, which was the firm’s middle market private equity arm. Both are extremely smart, high integrity, and believed in operations as a key enabler and differentiator. We are a team that can do traditional buyouts and challenging deals like carve-outs, stand-ups, distressed, and debt for control. That's what made the team I joined and the firm we started very exciting.

People that I used to work for always ask, "So, how's it going?" I think it's been fun. It's been challenging, especially the first few months, and the first year trying to get the firm off the ground. I'm now sure I've had the same sleepless nights that every entrepreneur must have felt in the early years of their venture, but we're doing very well at this point. We're still in the first inning though, so a long way to go.

Linnea: It was 2012 when we pulled you into your operating partner job at Platinum Equity, a time when it was a relatively new role, and it was rare for us to pull an OP from one fund to the next – you being an exception. Though, of course, your background before that is the typical restructuring and strategy consulting blueprint. This makes you one of the few OPs today who is incredibly experienced and who’s been through several funds and cycles. How have you seen the role evolve over your decade in the industry?

Ben: I remember that day when Kevin O'Neill called to talk about the opportunity at Platinum Equity. I don't think it took much convincing, to be honest. To answer your question, I don't think the operating partner role has changed much over the last 10 years, but I think the deal landscape most definitely has.

In my opinion, one of the biggest changes has been driven by entry multiples. There is so much more capital today than 10 years ago chasing probably the same, maybe more deals, but certainly the amount of dry powder has increased a lot faster than the availability of deals. Entry multiples have increased significantly.

Ten years ago, an undermanaged or mismanaged lower middle market company would've been priced in the 4-6X EBITDA range if it was a platform. That same deal would probably go for 7-8X today. It's a big increase. A large cap company would now go for the low teens or higher if it's perceived to be a high-growth investment.

This means it's harder to achieve multiple expansion in general when it's time to exit the investment. There’s less margin for error. Financial engineering or inorganic growth or M&A is not enough to deliver a great return.

The operating partner's job has not changed per se but it has become more challenging. You still need to build great management teams that can grow organically, operate efficiently, and integrate bolt-on acquisitions. I think that remains the same, but the environment has become a lot more like a pressure cooker, probably driven to a large extent by the much higher entry multiples for deals.

Linnea: As you look ahead, and at the conditions in the market, what’s next for the function?

Ben: I don't think the job at its core is going to change. I think of it in terms of what makes an effective operating partner, and I think of it along five axes or dimensions.

The first one is helping make sure that their fund, their PE firm, is making the right investment decisions, which means being active in the due diligence process and giving deal teams insight around the potential strength or lack thereof of the incumbent management teams and identifying and developing potential levers that can be pulled to grow EBITDA. A lot of that begins to form during the diligence stage.

The second part is ensuring that we have the right management teams. Evaluating the existing team, identifying gaps, working with recruiters or your network to search and attract the right talent. I believe that is the most important job of an operating partner because you can't do everything without the right management team.

The third dimension is what most operating partners focus on - having the right plan of attack, also known as the value creation plan. This is partly where the art of being an experienced operating partner comes in; you can sell that to management teams. Unless the operating partners take on the CEO job himself or herself, which happens, management must execute. For them to execute well, they must believe in it. If they don't, your value creation plan will never get executed.

This is operating partner 101, which is not always obvious to those who come from the world of management consulting because in management consulting, you typically write a report and then move on to your next client. In the world of private equity, the sexiest strategy is not worth the paper it's printed on if management cannot deliver it. For them to deliver it, they have to believe in it.

The fourth dimension of being a good operating partner is hitting on the right growth and optimization levers.

The fifth and last one is most important. If you do the above four right, you should deliver quantifiable results. By quantifiable, I mean it shows up in the P&L and not soft savings in some KPI chart. I've had many partners’ eyes glaze over, deal partners’ eyes glaze over earlier in my career while talking about manufacturing efficiency improvements, for example, where the improvements were intangible. Soft savings matter, of course, but hard savings is probably what your PE colleagues and deal colleagues really care about.

When we talk about the direction of the operating partner landscape, everything is a derivative of the above five. For example, digitization and AI, great buzzwords. Digitization has been around for a while, but AI is fairly new. I've been asked by my colleagues, "How can AI help our portfolio companies be more effective? Heck, how can AI help our deal teams be more effective?”

I think people are still trying to figure it out, but I think I have an idea of where it could head in a few years.The point I was driving at is to me, these words - digitization or AI or e-commerce - they only matter if it helps the company deliver something tangible and measurable.

Can it help a PortCo reduce costs by becoming more efficient? Can it help them enhance their customers' experience, hence making them less likely to churn, or help them buy more or help the company acquire new customers? I hire specialists, a lot of operating partners do because we don't know everything, but for me it starts and ends with what am I getting from my investment?

Linnea: That's a great approach. I love that list of five points that you had. I want to ask you about number three — management teams since that's relevant to the work we've done together on the executive recruiting side. Tell me about your assessment process, from diligence to post-close. How do you ensure you have the right team in place?

Ben: What has worked for me, which is part of the Cross Rapids Capital operating model, is to embed into our portfolio companies. Some operating partners think that they can manage by Zoom or conference call. Spreadsheets and KPIs, while important, are no substitute for spending time on the ground interacting with all levels of the portfolio company. In essence, that's how I make sure we have the right team in place.

During the time that I'm embedded, I get to know not just the CEO and his direct reports, but even mid-level and rank and file employees. There's one bolt-on in particular that we did where a forklift driver approached me out of the blue and started talking about things he thought that the new owner should work on to improve the business, which I thought was amazing at the time, and I still do.

I have a fairly good idea in about a month or two who the A players and B players are. Now, it's worth noting that every company needs B players because there's no such thing as a company full of A players. It's not realistic and it’s too expensive. Ultimately, what you want to make sure of is that you're cultivating a team with the right balance.

In Cross Rapids’ case, the founding partners have over 50 years of combined private equity experience. We have an extensive list of people who we've worked with and who enjoy working with our hands-on and collaborative style, and who have delivered successful exits. These executives are typically our first go-tos. In fact, I always joke with Kevin O'Neill, who's the co-founder and managing partner of Acertitude, that as “Ben the Closer” I can deliver great, long-term wealth creation like no other with the Cross Rapids Capital pitch. The biggest obstacle for our executives is always relocation. So, you wind up having to do searches, and when we do these searches, I tend to work with a small group of recruiters like Acertitude that I've built trust and relationships with.

Linnea: Teamwork is a core value at Cross Rapids as it is at Acertitude. What are some practices you have put in place to build early alignment with owners and management teams, and remain engaged for the duration of the partnership?

Ben: I think the key to teamwork is to over-communicate and build consensus. I say this with a caveat because you cannot be a victim of analysis paralysis. For example: creating decks over and over or running never-ending spreadsheet models to try to win people over. At some point, you must execute.

This is a good segue into the fact that there are generally two kinds of PE firms, which you know because you've worked with a lot of PE firms of all different stripes. Within these two types of PE firms, there's a continuum. There are no absolutes, but for discussion purposes, we'll assume that there are just two. In one type of PE firm, the operating partner role is primarily to advise deal teams and portfolio company management teams, and that's the extent of it, so I think of those operating partners as internal consultants. Then you have the other kind, which is the very hands-on PE firm where the operating partner is expected to lead the value creation agenda.

This is exemplified by our approach at Cross Rapids Capital, where as I mentioned earlier, operating partners embed within portfolio companies and in some cases, act as chief transformation officers. In rare cases, where there's an opening that's particularly tough to fill, which has happened a couple of times in my career, they can take on interim management roles.

In both cases, operating partners as internal consultants and operating partners as doers, consensus in buying is needed, but there's a difference between what consensus and what buying is needed when you're in a consulting advisory role versus when you are in leadership and execution role. In the former case, you need to over-communicate and get buy-in because that's the only way you're going to get anything done. In a firm where you have a leadership or execution role, you want to get buy-in because that's what greases the wheels. If you don't get universal buy-in though, especially if it's in a crisis situation, you ultimately have to execute anyway since you can only spend so much time writing decks or doing analysis to build a case.

As an operating partner, the type of PE firm you work for determines what you can largely do. Additionally, as everybody knows, there are two major stakeholder groups in every PE firm. You have the PE deal teams and the CEO, and the PortCo management teams. Of course, there are other stakeholders such as employees, customers, and suppliers, but I'm just focusing on the first two. These two groups acquire different levels of transparency and engagement.

With your PE colleagues, regardless of the type or nature of private equity firm, it's important to always be fully transparent. Issues and potential issues need to be communicated well in advance with mitigation plans developed and ideally already in place. A corollary to this is that an operating partner is also expected to provide a deal team’s candid feedback on company performance, and even CEO and management team performance.

The universal truth in the private equity industry, and I'm a victim of this as well, is we tend to fall in love with management teams. We spend weeks or months together in the trenches during a deal that's working its way towards a close, but as an operating partner, you must maintain a certain level of detachment because part of your job is evaluating situations and people objectively.

Once a deal closes, the dynamic of the relationship between the PE firm and the management team sort of changes anyway. It helps that the management team are your friends that you have some personal relationship with, but once a deal closes, it's all about performance and results. In many ways, it's up to the operating partner as the primary tip of the private equity sphere to provide unbiased, positive or negative feedback supported by facts.

Ultimately, everybody must be on the same page for a company to be successful and communication and buy-in are critical.

Linnea: That's a good point about falling in love with the management teams, which we hear quite frequently from human capital operating partners. Do you have any advice on how to better influence talent decisions when they need to be made, so that 12 months from now, inevitably, that person fails and we're doing the search later versus at the point of the deal?

Ben: It's a tough dance. An operating partner who's engaged obviously sees well in advance before everybody else if a certain leader is not performing. If the culture of the PE firm is such that it's more hands-on and operational, where the operating partner is expected to be a leader and to take point in executing, then it's easier to make those personnel decisions.

In a case where the operating partner is in an advisory role, then you need to build a case filled with facts and data. You almost must wait for that executive to fail for you to have a case to make a replacement. I've seen both cases - you're a victim of the type of PE firm you work for.

Linnea: One of the defining strategies of the middle market is creating value through add-on acquisitions. Could you walk us through a platform build you’ve worked on – what was the investment thesis, how did you win the bid, how did it get to work, and how did you deliver a successful exit?

Ben: Before I answer that question, I want to point out that, as you said, PE firms are ultimately in the business of buying and selling companies. So, we don't make money if we're not doing either. Just about every deal has an M&A component as part of its investment thesis. Does it happen all the time? No, because you're in a proprietary deal. Usually for add-ons, a lot of them are proprietary, where the seller has not necessarily committed to selling the business.

Number one, you're a victim of what's available, and number two, sellers’ levels of interest typically fluctuate. Initially, they may be okay with selling their business and then later in the process change their mind, or vice versa. They may say, "No, but you keep working it," and later they change their mind, especially in founder or owner-led. I think for institutional or sponsor-owned businesses, that's less the case.

If it's a founder or owner-led business, which we tend to focus on a lot because we are in the lower middle market, especially for bolt-ons, you have that emotional complication. I remember a prior deal where, according to the seller, it took several years. From the time we closed the platform, we reached out to this potential add-on, and a few years later, the owner still said, "Yes, I'm interested," one day, and then, "No, I'm not," the next. In that specific case, at many points we just wanted to give up. So, you're a victim of that emotional attachment where this company is, frankly, their baby. They started it decades ago and it's hard to let go.

One of my earlier, very successful deals, was a distribution roll-up. We made a lot of operational improvements, but we knew we needed M&A to scale quickly. We made four bolt-on acquisitions over a three-year period. We could have done more because it was a very fragmented space, but the deal team decided at the three-year mark that it was a good time to exit. That was a prime example of a great deal. It certainly exceeded my expectations, especially given the pace and our ability to integrate, in a very, very fast way.

Linnea: Any key learnings or takeaways from that experience that you think would be helpful to other people in the space looking to do what you've done successfully?

Ben: Yes, I've done many bolt-ons in my career. If I think back on the dozen-plus deals I've worked on, almost every single one has contained at least one bolt-on. For me, the key learnings happen on the less successful ones. You tend to not learn much when it's very successful, and you tend to learn a lot when it doesn't really go your way. My definition of relative failure is probably less synergistic than expected.

There are probably three or four major types of synergies that I look for. If it's a distribution business, looking at the example I just gave earlier, its adjacent geography is a key synergy. If your business is based on the west coast, for example, it doesn't make sense to do a bolt-on on the east coast with nothing in between.

Whether the business is distribution or manufacturing-based, you're looking for operational synergies, which are in the form of footprint rationalization or procurement opportunities. This is especially relevant if you're buying the same raw materials – you're always looking for procurement savings.

In all businesses, you're looking for revenue synergies. That could take the form of new products or services that you can now cross-sell to your customers, as well as bolt-on customers. You look for pricing opportunities, and the less successful ones don't pan out as you expected. All competitors, suppliers, and customers may react in a different way than you were expecting, or you realize you can't close one facility for various reasons. These are the scenarios in which I think the learning takes place.

Linnea: How do you keep your own leadership skills sharp?

Ben: I think leadership should be about telling people the truth. I think it should be trying to put yourself in other people's shoes so that you can influence them based on what motivates them.

When you're trying to sell a vision or a plan, you need to put yourself in their shoes. What's in it for them? Otherwise, how can you influence them to go above and beyond versus just going through the motions? Which is why the saying "Don't let a good crisis go to waste" exists because one of the best ways to motivate people and get them to go beyond what is needed is when there's a moment of crisis. When the existence of a company is at stake, then people tend to pull together and do what they need to advance the situation.

I think leadership is about genuinely caring for people, and caring takes many forms. When you have a company that's not doing well financially, so now you must lay people off, somebody might say, "Well, that's not caring." From my perspective, that is caring because I'm trying to preserve the jobs of the people who are within the company. You're letting go of people that are probably less needed. Maybe they're in a function that's going to be eliminated, maybe they're in a force ranking, or they didn't perform as well as some of their colleagues.

For me, as a leader, you must tell the truth, you must make hard choices, and letting people go may not seem like an act of caring to the people that are being let go, but it is an act of caring for the company itself and its various stakeholders. Keeping the company in business allows it to continue serving its suppliers, continue serving its customers, continue serving its employees and everything else. That's my definition of caring, but you do have to care and treat people well and fairly.

How do I keep it sharp? By practicing it every day. Always telling the truth to the best of my ability, which doesn't mean you give stakeholders different levels of access to the truth because there's certain truths that probably doesn't make sense for a forklift driver to know, but always being honest in your interactions. Providing honest and candid feedback. As you know, I'm a very direct person. People who work with me and for me generally know where they stand, and I think that's an important part of being a leader and certainly an important part of who I am.

Linnea: Are there any books, podcasts, or quotes that you draw inspiration from?

Ben: I read the New York Times and the Wall Street Journal every day, but other than that, I have not read a book in probably 10-15 years. I do remember the last book I read called “Guns, Germs, and Steel” by Jared Diamond. I don't know if you know it.

Linnea: Not that one. Although I am an avid reader, so I'll have to add it to the list.

Ben: Yeah, you should add that to your list. It's about how the happenstance of geography led to the rise of civilization. Race and culture have nothing to do with why certain societies advance more or faster than others. It's a very fascinating read backed by a lot of research.

A book though that I would like, especially for people involved in manufacturing to read, is called “The Goal” by Eliyahu Goldratt. I first read it decades ago, and I still remember the title. I remember the author because I buy the book by the dozen at Amazon. I literally hand it out to PortCo management teams, especially those that are in manufacturing. It's very easy to read. It's very thin. After you read it, you'll be an expert in lean flow. It's a lightbulb moment. It's probably the best book, in my opinion, around how to make companies, in general, efficient.

Linnea: In each episode, we like to define brilliance in a few ways. I’m going to hit you with a quick lightning round if you can fill in the blanks.

Ben:

Purpose is… the engine that drives us forward to fulfilling our goals or reaching our destiny if you believe in such things.

I believe having a purpose beyond oneself is required to be successful. I'll feel sorry for you if you feel, or you believe you don't have any purpose. I think we all have one. I think discovering one's purpose is part of the journey, and once you discover that purpose, I think life becomes more fulfilling. I've always told my children, "I love what I do. I don't think it's work," and that's partly because I think I have found my purpose.

Leadership is… this energy that allows one to steer a group. It's a hard word to define, but for the Star Wars fan, it's “The Force” that allows you to lead people.

Success is… leaving a legacy behind. The best legacy, in my humble opinion, is your children, if you have any, and if you raise them well. I think the jury's still out on mine, but I hope they become good, successful people. For me, ultimately, that's what will define my success or the lack thereof.

Brilliant leaders are… intellectually curious, empathetic, and results oriented.

I perform at my best when... I'm in a challenging situation.

To be clear, I don't create chaos, but I enjoy creating order when there is none, especially when there is a time crunch element to the situation. I always look back on my Alix Partners years, in that those have been some of my most fulfilling due to the nature of the very challenging projects I was involved in and for very troubled companies.

Thank you to Ben Gaw, Head of Portfolio Operations at Cross Rapids Capital for joining us on today's episode. We hope all of you walk away with new insights on how to take on the operating partner role effectively and navigate complex operational challenges, ultimately delivering greater value and sustainable growth.

That's it for this episode of The Brilliant People Podcast. If you found this conversation valuable, be sure to subscribe, rate and review the show wherever you get your podcasts. Follow Acertitude on LinkedIn for the latest insights on how to lead and perform at your best.

Until next time, stay brilliant at work.

Defining brilliance with Ben Gaw

	Purpose is:	the engine that drives us forward to fulfilling our goals or reaching our destiny.
	Leadership is:	the energy that allows one to steer a group.
	Success is:	leaving a legacy behind. The best legacy, in my humble opinion, is your children, if you have any, and if you raise them well.
	Brilliant leaders are:	intellectually curious, empathetic, and results oriented.
	I perform at my best when:	I'm in a challenging situation.