Dealmaker Q&A: Coalesce Capital’s Stephanie Geveda on Recapitalization Trends

Stephanie Geveda has spent 20-odd years in private equity, including 12 years at Warburg Pincus where she led the business services group. But in 2022 she decided to strike out on her own, founding Coalesce Capital, where she now serves as managing partner. Coalesce’s debut fund raised $900 million earlier this year, above its target of $750 million in a tough moment for fundraising. Geveda spoke to Middle Market Growth about her firm’s inaugural deal, how she sees the recap trend developing and what makes her firm stand out.

Middle Market Growth: When you worked with Stout on your first closed transaction, what were you looking for in an investment target, and how did Examinetics fill those requirements?

Stephanie Geveda: Examinetics was a strong fit with the Coalesce archetype: It has an incredibly high-quality, recurring business model driven by megatrends around increasingly complex regulatory and compliance requirements facing businesses, industrial onshoring and the growing emphasis on worker safety and corporate responsibility. Examinetics’ repeatable, mission-critical service offering has clear competitive advantages relative to competitors, while the business also aligns with our broader thesis in testing, inspection, certification and compliance (TICC), where we identified a trend shift from just testing products to testing people and processes.

The company also operates in a large core total addressable market with a broader addressable market to go target, while serving a highly diversified, sticky client base of 3,000+ customers. Notably, Examinetics is led by an entrepreneurial management team motivated to create the TICC platform of tomorrow. Paul [Fenaroli, chairman and CEO of Examinetics], Gary [Gluzberg, president of Examinetics] and the rest of the team are highly knowledgeable and experienced leaders, and they are fully aligned with us on a shared vision for scaling the business and enhancing the range of customers they serve and the value they can deliver to them. We’re already executing some of our big strategic initiatives to supercharge this business, so we’re really excited about its current trajectory.

MMG: This was a recapitalization deal, which has been quite a trend in the M&A market lately. Do you see that trend continuing, and how do you see it developing?

SG: We think the recap trend continues, as it provides a needed source of capital in the market. This is especially important given the growth of private equity over the past few years which needs to find liquidity alternatives, especially when you consider elongated hold periods. The market for recaps will continue to deepen. We are already seeing the rise of continuation vehicles, which have become increasingly popular, as another method to achieve this. Personally, I have been very comfortable with large minority co-investors or even co-control deals, including my investment in Sotera alongside GTCR while at Warburg Pincus. On that deal, we were able to leverage the strengths of each partner effectively, ultimately driving growth and value creation for all Sotera stakeholders.

We think the recap trend continues, as it provides a needed source of capital in the market. This is especially important given the growth of private equity over the past few years which needs to find liquidity alternatives, especially when you consider elongated hold periods. The market for recaps will continue to deepen.

MMG: What are some industry headwinds you’re watching in the technology-enabled services space that Coalesce is targeting, and how do you plan to drive growth despite those?

SG: There is no doubt there are serious headwinds for some of those firms, particularly those with people-based processes that could, thanks to AI and machine learning, be vulnerable to automation. This is a time of immense technological change that will lead to severe disruption. But disruption offers both risk and reward and we plan to drive growth in this space by distinguishing one from the other. Let me give you an example: we’re finding plenty of companies that are early adopters of AI and are using it to enable their people to do more. These firms are looking for partners like us to invest in emerging technology which will enhance their efficiency and productivity.

MMG: Coalesce is a new firm, and this was your first deal. Is there a process or strategy that you’re implementing in your own firm that you’ve always wanted to do, but haven’t been able to before in previous positions/companies?

SG: I would say two things. The first thing I wanted to do which I couldn’t in previous positions was to focus intently on lower middle market business services firms. I’d met so many of them over the years and seen their tremendous potential and I could see so many opportunities for growth. I set up Coalesce because I wanted to seize that opportunity and direct my resources to helping them execute their goals and ambitions. Take Examinetics, which provides occupational health testing for businesses. We could see its potential for growth. And over conversations with Paul, Gary and the team, they recognized that working with us would give them both financial backing and a partner to help them scale and innovate. That’s exactly the vision I had for Coalesce when I started out.

The second thing I was able to do for the first time was to take all the experiences I have had, the mistakes I have made and the lessons I have learned from 20-25 years of experience in private equity and bundle all that up to build a distinct culture. So, I’ve very consciously built a team of 20 people with diverse backgrounds and skill sets and I like to remind everyone that they have an obligation to dissent, no matter whose viewpoint they may be challenging. This helps us avoid dangerous echo chambers and allows us to be more thoughtful stewards of investors’ capital.

MMG: Coalesce Capital, which you founded in 2022, is a relatively rare thing: a female-founded and female-led PE firm. How do you think that impacts your firm culture and investment approach?

SG: You are right to say it’s rare: There are very few women in leadership roles in the top PE firms. As to how being female-led impacts the firm’s culture, let me put it like this. As I’ve said before, if you’re a woman in this business you grow accustomed to standing out from the pack. So perhaps that has made me a little more comfortable with building a culture that isn’t afraid to be different. On a day-to-day level that means that in this firm we embrace diversity both of background and opinion. I don’t want to surrounded by yes men and yes women, I want to be surrounded by a team of women and men who have the confidence to challenge the status quo and the resilience to be challenged themselves.

There’s one other thing to mention. I feel a special responsibility given my position to support under-represented groups in PE. I don’t want to be one of those people who draws up the ladder behind them. I’m blessed to have a long list of great mentors, many of whom are women, and I understand the impact that guidance from one senior professional can have on one’s career trajectory. That’s why I founded Women@Warburg while at Warburg Pincus and it’s why mentorship and support are critical pillars of our culture at Coalesce. We are deeply committed to developing our own talent and providing everyone with opportunities for growth and success.

This interview has been lightly edited and condensed for clarity.

Hilary Collins is ACG’s Associate Editor.

Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.