Episode 141: Mike Magliochetti of Riverside Partners on Deep Operating Partnership in Healthcare

Episode Transcript   

 

Shiv (00:10.734)

All right, Mike, welcome to the show. How's it going?

 

Mike Magliochetti (00:13.036)

Pretty good, pretty good, Shiv. Thanks for having me.

 

Shiv (00:15.67)

Yeah, excited to have you on. Obviously we've known each other for some time with you being at Riverside. So why don't you start with your background and also you've written a book, so maybe touch on that and then we'll go from there.

 

Mike Magliochetti (00:25.696)

Yeah, yeah. I've been at Riverside for fifteen years now as a full time operator operating partner. Hard for me to say. it's the longest I've been I've touched on anywhere. but I didn't grow up in private equity. My background is really different than my partner's, very different, as a matter of fact. I originally trained as a chemical engineer, have my undergraduate PhD degrees in chemical engineering and and after my first assignment went to business school and and my career took a

Totally different trajectory at that point. I for the next 20 years I had the good fortune to be blessed to serve as CEO of three companies, mostly in the medical device diagnostics spaces through successful sale transactions. UroSurge, which is the urology gynecology business that we sold to American Medical Systems, RMH, which is an orthopedics company that was acquired by the European company Autobach, and my last company, Claros.

which was a oncology diagnostics business that was acquired by the public company Opko Health. It was while I was at Claros as CEO that I met Riverside. I got introduced to a mutual friend like this, to the managing general partner, David Bellic. And David and I clicked right away, which isn't difficult to do with him. And after a few meetings he asked if I wanted to serve on Riverside's Healthcare Advisory Board, which is a

a group of executives from all different subsectors in which Riverside plays to to really help the firm with diligence on opportunities, my deal origination, serve as an independent board member here and there, and just add value whenever called upon. And so I was in Boston, they were in Boston, didn't seem like too heavy of a lift while I was running Klaros. And the firm had a tremendous reputation, so I decided to do it. And and fast forward four years later,

Klaros was acquired. I was deeply involved with Riverside on on multiple fronts and I I stayed along with the acquirer at Opko to run their global diagnostics business. I did that for about fourteen months. part of the deal was a retention package that I that I was able to go through and Riverside reached out and asked if I really wanted to give my career a dog leg left and join full time.

 

Mike Magliochetti (02:49.295)

And I'll tell you, Shiv, you know, I it wasn't even part of my calculus. I thought that, you know, for me, I've I still had a hell of a lot more fuel in the tank, maybe another CEO role or maybe teach somewhere. and but I did have I knew I had the chemistry box checked. I I saw how over the course of the the previous five years how they treated each other as partners, but more importantly how they treated the management teams and the companies they invested in.

And and and I had been on the other side of the equation for the for twenty twenty years and this was very this was very different. and so I'm sure you've had your listeners have had some great mentors in in your careers. I definitely have. I've also had folks I couldn't take another thirty seconds with in a boardroom and I didn't I didn't see any of that behavior. None of those shenanigans, none of none of that insecurity.

 

Mike Magliochetti (03:47.305)

And so I decided to do it and give myself a year fuse to see if I'd like it or not. you know, going from player to coach is i i is different. and, you know, you pick your head up and fourteen, fifteen years goes by. It's amazing. I guess lesson learned from me is if you like what you do and who you do it with, the time just goes by, you know. so yeah.

 

Shiv (04:07.933)

Yeah, totally. And so and so what's your focus now? I mean, given you've had these exits, you have a a wealth of experience here, like where are you focused inside Riverside and the companies that are that are in the portfolio

 

Mike Magliochetti (04:18.878)

Yeah, yeah. I mean, I'm fully integrated with our with our GPs. but for me, you know, th these companies, you know, they're just to g give you a little bit of a backdrop, these are I guess you textbook lower middle market, ultra lower middle market companies, founder run majority management owned companies when we invest. they're good companies, they'd be good companies whether or not they met us. But there are opportunities for these businesses that when we invest are doing, you know.

three to six you know million dollars in EBITDA, maybe a little bit higher, depending. there's really grassroots value creation opportunities here. And I kind of look at it in, you know, three, three key areas. There's the opportunity to professionalize the management team. You know, oftentimes, you know, we we play, I I should say we play in pharma services, tech enabled healthcare services, contract manufacturing, medical devices.

oftentimes the founder will come to us during diligence and say, Hey, listen, Mike, you know, I'm a PhD biochemist. I've taken this company to thirty million in revenues. I know what it should look like, perhaps at a hundred and thirty, but I'm not sure how to get there. Well, you know, we have a thirty-seven year playbook as a firm to get there, right? And and so for me, I'll sometimes parachute in, work with them on the succession plan, bring in a

 

Mike Magliochetti (05:45.911)

bring in a professional CEO who's been there, done it before, and oftentimes the founder, you know, will ask, you know, what do you really enjoy doing? And, you know, they they oftentimes will like to, you know, they like to work with clients or, you know, be a brand ambassador, be on the, you know, at the tip of the spear, if you will, from a from a scientific standpoint. And so we kind of play, play to that.

oftentimes, you know, we'd like to bring in a new CFO. and we get pushback from you know, sometimes we'll get pushback from the founder. Why do I need a CFO? What's the CFO going to be doing that I'm I'm not already doing today? And they have maybe a a part time accountant managing a four million dollar EBITDA business on QuickBooks. so especially if we have leverage on a company, you know,

having a professional CFO, getting involved with that hire. and inevitably a quarter or two later the founder will come to us and and say, I can't believe I ran the company without this person. You know, I'm the metrics, the KPIs. I'm looking at the business like I've never looked at it before, right? In that depth. So it's an evolution. You know, from a business development standpoint, Shiv, you know, oftentimes these companies are growing at five, ten, fifteen percent a year, just by word of mouth.

Just by client to client referrals or on the shoulders of the founder's network. And that that's a good thing, but it it's not scalable. So this is an area, go to market is an area that I really love. I enjoy it. so the opportunity to bring on a a VP, a world class VP of sales and marketing, you know, build out inside sales, field sales, hunters, account management. that's all that's all part of it, you know, working to to bring that forward. and once

 

Shiv (07:19.319)

Yeah.

 

Mike Magliochetti (07:36.993)

You know, you know, as we think about professionalizing that, the systems and processes, bringing in those as simple as it may sound to you, you know, a CRM system, Salesforce or HubSpot. and then once we continue to roll forward a, you know, maybe cross-functionally, an ERP system, depending on the business, if it's a laboratory business, a LIMS system, you know, bringing that institutionalizing the performance.

there. And once we feel good about the systems and the processes and the people, I'll get deeply involved with, you know, add-on acquisitions to, you know, get a business into different geographies or technologies or diversification of clients. That's all that's all part of sort of this whole value creation recipe, if you will. And I'm just I'm sharing the tips of the waves with you, but that's you know most often where I'm I'm deeply engaged.

 

Shiv (08:32.973)

How how deep are you getting engaged? Like that that that's, you know, given your experience, like are you getting very operationally involved with these companies or are you almost acting like an advisor to the CEO to kind of guide them in the right direction?

 

Mike Magliochetti (08:45.812)

Yeah, I I I guess a little bit of both. You know, honestly. I can give you an example with one of our companies, in the pharma services space, we were we were at a point where our cli the company was growing, it was we really had a position well with the with the with the management team, business development, and some of our clients were asking for a European presence, some of our big clients, that if we had a presence in Europe they would

you know, with respect to clinical trial samples that they we would be analyzing. They would give all of our sa all of their samples to us. And so that European footprint was very, very important. So I spent a great deal of time with one of my partners just diligencing finding very similar companies in Europe, founder owned businesses in the bioanalytical testing space. Must have gone through fifty companies.

 

Shiv (09:38.829)

Mm-hmm.

 

Mike Magliochetti (09:41.713)

and we didn't want to distract management with that. So really engaged there and teed up three companies to the to the leadership team to go ahead and make a decision. and we made we ended up acquiring a business in Hamburg, Germany, and that really changed the complexion of the company and the trajectory of the business. but yeah, you know, I you know, I I sometimes we'll we'll get deeply involved in in

from a business development standpoint, working with the teams, attending weekly meetings, you know, new hires really being, as I say, the tip of the spear there on new executive leadership team hires, working through budgets, that sort of thing. So yeah, I try to I try to meter it a bit, but take the lead from the executive leadership team and the founders. You know, I never pretend to know a business better than the the leadership team knows a business.

It's just really being able to get that accessibility to act you know, to to to plug in and and add value.

 

Shiv (10:45.267)

Yeah. Is there like is there an approach that you're taking or like a value creation framework that you're following? Like how are you figuring out where to focus these companies or or where those levers are in every cause I'm assuming every situation is gonna be quite quite different. And so ways in which you would have to help is gonna look different as well. So I'm curious like how you go about that given your experience.

 

Mike Magliochetti (11:05.64)

Yeah, you know, I guess in d y you you really flush a lot of that out in diligence, right? We I mean y you know, really where you need to plug in, whether it's you know, if they're if they're really not mature matured if from a from a a management perspective, if they don't have leaders in place who have scaled businesses, you you know that that's going to be an area very, very quickly that you're going to wanna plug in. Business development, you you know, of course, you know, you'll based on

based on the the the footprint that they have today, what they have in terms of in in terms of people is it just inside sales do they have a field sales team you know and and and and you know I it it it it evolves over time with respect to the add on acquisitions when we feel comfortable. We may never do an add on acquisition, but most more often than not we do. But I have to tell you kind of stepping back, right, Shiv and it's taken me

 

Mike Magliochetti (12:04.812)

Quite a long time to to to kind of figure this out, but the the role of the operating partner, you know, we we exist to add outsize value, right? I mean, it you know, it it like these companies have to be better off for having us involved than not. And and and I look at it in there's two two buckets, if you will. One is more nuanced and subtle, and the other is more objective and roll up your sleeves.

On the subjective side, I really try to be in in both of those, both of those areas, you have to be that trusted confidant. Right. and you I you know, from a from the nuanced side, you know, there's not too many landmines over the past 30 years, both as an operator and in private equity, in every functional area of a business that I haven't stepped on. So I try to create an environment where they can come to me.

 

Mike Magliochetti (13:01.526)

The CEO, any member of the executive leadership team can come to me with issues that they're navigating, problems that they're working through. And I'm not going to wave the red flag to my partners and say the sky is falling and have that knee-jerk private equity or venture capital reactionary behavior that we'll sometimes can see. But what I try to do is work through that and and instill on them that it's not an us versus them. It should never be that. Them should be the competition.

Right. And as part of this, you know, you're working through these issues, and very more more often than not, they're organizational behavior issues, client issues, and you you know, you you you get through it together, you build that trust you know in in in baby steps. I mean, private equity is is it thrives on transparency and trust. And you don't get the la you don't get the latter without the former. So and as part of it too, you have to be aware of the egos involved, both on the on on our side.

 

Mike Magliochetti (14:00.668)

And the founder side. The founder may have been running this business for forty years. And and so being aligned on an investment thesis and as I say in my book, you know, serving outcomes and not egos. You know, it's very, very important that you you kind of get to that get to that point. and on the more objective side, I mentioned it, you know, the go to market perspective. you know, this is an area where I

I roll up my sleeves. I'm often invited to weekly or biweekly business development team meetings from our portfolio for several of our portfolio companies. And during those meetings we interrogate a pipeline, you know, in Salesforce, we look at the different probabilities to close, the values, and I keep an eye out for these, you know, these larger opportunities, these larger prospects where I can leverage my 30-year network, but also those of the health care advisory board that I now chair at Riverside, that's almost 30 individuals.

all very active to come in over the top and advocate for our company for these select opportunities. On a C level and also, you know, warm introductions to new logos. I can point to over the years tens of millions of dollars of new business that have been won that has been won this way. And I can tell you if you want to build trust and camaraderie quickly, get your nose out of an XL spreadsheet and move the needle on revenue. That will do it. That'll do it very, very quickly.

 

Shiv (15:25.783)

Yeah.

But you know, I really loved what you said there as you started this part, Alpha, where you said that the role of the operating partner is to add outsize value. And I think that's something that's missed in a lot of private equity firms. Like we work with all kinds of PE firms, small and large, and there are operating partners like yourself that are adding a ton of value to their companies. And then there are other operating partners that are kind of like they're like these check-in buddies that get assigned to these companies and

They'll check the spreadsheet and then just kind of translate it back to the board, but like they're not really adding value. And it's kind of a wasted seat inside these PE firms. And it's frustrating for the CEOs or the founders inside these companies. And it's frustrating even for the investors because the companies may not be growing at the level, at the level they are. So I'm I'm just curious: like, is that a is is that a function of the fact that you have operated in this industry and the way the riverside is focused is on healthcare. So you're able to

bring way more value or is it a function of just functional expertise that can help or or is this or is this something else? Is it like networking or being involved with the company at a different level?

 

Mike Magliochetti (16:38.366)

Yeah, you know, honestly Shiv, when I when David at Riverside offered me the role of operating partner, naively I thought that, you know, this was basically someone in the twilight of their career, you know, sort of as a pseudo consultant, you know, and and that I that's not what I wanted. I still had a hell of a lot more fuel in the tank as I do today. and I made it known that you know that that was not my that that that that's not

what I want that expectation was not going to work for me. And I was given the autonomy to just go ahead and we did have operating partners at Riverside at the time that played more of that type of role. and so what we've done is we've morphed towards, you know, me now chairing operating advisors, our healthcare clinical advisory boards, and and and and being deeply, deeply engaged. For me, I get the same adrenaline rush

in in my role in working with our portfolio companies as as I did as a CEO. and you have to in my opinion, you have to pay for your freight, you know, and and you know I d I I just that role I don't know if that role will ever be adequate for me in that you know that sort of pseudo consultant type role. I think it a lot depends on the firm and the autonomy they give operating partners and the expectations that are set.

for the operating partner. I think it's a disservice to have these folks with all of this experience and not be able to build that bridge be build that bridge with the executive leadership team members. I wish I had these tools when I was a CEO to draw upon that I that I kind of bring to bear to with our advisors, with my network and to our portfolio companies.

 

Shiv (18:11.095)

Yes.

 

Shiv (18:27.095)

Totally. Yeah. You know, one one my pet peeves or or just even theories is just that inside companies, there aren't enough people that understand how rev what what actually moves the needle on revenue. there are people that are good at doing tasks or handling operations or making sure things are shipped. But when it comes time to actually close more deals and drive more pipeline and go outside the building and actually find more customers, there are far fewer people that know that. Like and and

 

Mike Magliochetti (18:53.675)

Yes.

 

Shiv (18:56.725)

In the private equity space, you can spend so much time in spreadsheets and build the best models and and figure out like an EVAD up projection and all of these types of things. But at the end of the day, you still have to drive more revenue and margin expansion to actually drive enterprise value. And there aren't enough people that do that. And I think that's one of the weaknesses I've seen inside companies and inside PE firms, where there's just this gap. There aren't enough people that have done this, and CEOs that have, like some of them are in a seat like you, but

I haven't seen enough true, true experts in that seat helping these companies. And that's one of the reasons why we get the business that we get is that on the marketing side, we are bringing that. But it's just a major gap. And and I I I expect continues will companies will continue to struggle unless PE firms kind of figure out that gap.

 

Mike Magliochetti (19:45.847)

Yeah, no, that makes it makes a lot of sense. And you know, I'm just kind of thinking as you're as you're sharing that, you know, I I've spoken over the past year, as part of this the the the book promotion, I've spoken to different colleges and universities, and evidence inevitably I get asked by students, How do I get into private equity? What should I do to get into private equity? You know, and they and I'll I'll tell them, you know, don't take that traditional path, you know.

where you know you go work for an investment banking firm or you know a consulting firm or and then you know do a stint at a as an analyst a at at a private equity firm and and then go for your MBA and then you're in this you know you're in this on this path of you know an associate, a vice president, a principal. Say stop and go work for a company. You know, go work in corporate development. Go work in marketing.

Go work in business development. Understand why decisions are made. You know, what you know, look look under the hood real time in in a business, rather than trying to be an Excel spreadsheet jockey at the end of the day and not having any experience to to draw upon. I think it's so it's so important. I'm surrounded by some super bright people. and and you know, some have had you know operating experience. But I think it's a it's a

 

Mike Magliochetti (21:08.28)

in filling that gap that you describe, I think that maybe that's one, you know, one avenue to to possibly get there. And and the same time get respect from the executive leadership team members of the companies that you invest in.

 

Shiv (21:21.805)

Totally. I I asked this question earlier and we kinda went on this this sidetrack, but I'm curious, like coming back to it, how much of it is the health care or health tech focus inside Riverside? Because that's kind of where you're focused. There's a network behind it. You kinda have this advisory board and there's connections and that can lead to introductions and pipeline for these companies. Like how much of that is at play here?

 

Mike Magliochetti (21:46.399)

It's it's significant, absolutely. I mean, we have the most experienced healthcare investment team in the lower middle market, I have to say, and the resources that we can bring to bear just by having that focus. Today we're a hundred percent focused in healthcare. that's that's all that's all we do. is different verticals within healthcare that we play. But I mean we have such depth the the the the the experience, the the deals that we see.

You know, when we speak to founders, when we speak to leadership teams, we hear that we get that feedback of, you know, we're not a generalist firm. You know, we we can go deep in every functional area of a business, whether it's in pharma services, contract manufacturing, medical device manufacturing, front to back end revenue cycle management services for physician practices. Got thirty seven years of experience in health care with a focus in health care. So it matters a lot, Shiv. It matters a lot.

 

Shiv (22:41.942)

Yeah. Yeah, because I it's like even especially in healthcare, I think one of the interesting things is that the sales cycles are long. There's only so many buyers out there. And so network becomes such a huge part of getting the right introductions. And we've worked with a ton of health tech companies in the past where that is the biggest challenge. Like there's only so many hospitals in the country and you gotta go to the right buyer inside these organizations. And finding that person from a go-to-market perspective can be difficult. So that's a key way that you're bringing that value

 

Mike Magliochetti (23:11.71)

absolutely. Well for some of our companies, for example, that have sold into the hospital space, our network to get to a C level executive at a hospital and get the exposure if they're in our pipeline or have that warm introduction, it goes it goes such a long way. Such a long way.

 

Shiv (23:29.9)

Yeah. Yeah. What what about beyond the network side? Like what about on the playbook side? How how are you helping these companies in terms of their product organizations or their go to market or or other areas that that can actually drive enterprise value?

 

Mike Magliochetti (23:47.127)

Well, you know, I think you know, what I had mentioned about you know business development and and the hiring process, compensation models, incentives, setting up MBO programs across an organization in every functional area. you know, that that's you know that that's an area that really pays back pays back dividends. And just the blocking and tackling the day to day, you know,

problem solving, to be able to, you know, work with the leadership teams and a as a as I say, as a trusted confidant in in addressing those issues is again comes to mind right off the top.

 

Shiv (24:29.097)

Mm. Mm-hmm. In terms of in terms of the the business development side, can you expand on that a little bit? Like how are you guys building that inside these companies?

 

Mike Magliochetti (24:40.16)

You know, we'll start, you know, depending on, you know, you know, what the business has in place day one, you know, just typically, you know, work work with them to build, you know, to bring on a, you know, a a real leader, a chief commercial officer or a VP of sales and marketing, and then kind of step back and think through you know, the inside sales function. Oftentimes these companies may have a couple of folks manning the phones.

And they'll or they'll go to a conference and have a table at a conference or you know, really building out you know a a field sales team, you know, working, you know, because oftentimes these founders have never done that before. You know, and so working with search firms, our own network and bringing in folks, whether it's regionally or you know, regional directors or area sales reps.

 

Shiv (25:11.714)

Yeah.

 

Mike Magliochetti (25:37.493)

You know, building building that out, building a you know, maybe a a a a marketing organization, and bringing on a head of marketing or depending sometimes our VPs of sales and marketing have worked with folks in the past they feel comfortable with. We've also used third parties from a marketing standpoint to help help with the business. again the the you know under the hood the the compensation programs, you know, working that out for the business.

and and then you know just kind of layering on the systems and processes to professionalize, institutionalize the the performance of of of the function.

 

Shiv (26:18.285)

Mm-hmm. Mm-hmm. How how much of the of the work is in hiring the right leader versus setting the right strategy or having the right like roadmaps and execution capabilities?

 

Mike Magliochetti (26:29.514)

Yeah, you know, I think a a a lot of it is that getting that right person, getting that right leader in place who's been there, who's done it before, has experience in the sector. I I think, you know, the systems and and processes and stepping back and looking at a roadmap on how effectively to approach the market. I think that's all part of it. But you know, really getting that hire right is so is so important and having that founder.

and the existing leadership team part of that, intimately part of that hiring process, because they're the cultural nucleus behind the business. And we were talking about a a lower middle market company where the founder has been the hero operator and making sure that they're part of they're they're part of that process is so important.

 

Shiv (27:19.137)

Mm. Mm-hmm. Let's I know we're coming up on time, but before we close out, just let's talk a little bit about your book. I know it just came out recently. Talk about what's in it, what do you cover and and why people or how people can get themselves a copy.

 

Mike Magliochetti (27:31.305)

Yeah, yeah, yeah. You know, I I I'll I'll try to go quickly here. you know, in every one of those CEO roles that I had, Shiv, in the in the twenty years before Riverside, urology, orthopedics, oncology, whenever I was fortunate enough to get offered a a CEO role, I never felt I was qualified. Not because of imposter syndrome, but because of the fact that, you know, I got tapped to run an orthopedics company and I had never spent a day in orthopedics in my life.

So I had returned money for shareholders. I was bilingual in the sense of technology and business. But what that translated to was a very, very steep learning curve, a reinvention in every one of these medical specialties. And I had a process that I used, quite simply, where I would I would always be deferential to those around me with lots of experience in the space. I would never let something be said that I didn't understand without asking the question and completely, completely immerse myself in these businesses. For the first six months, maybe the entire tenure of the CEO assignment.

 

Mike Magliochetti (28:29.334)

The whole concept of work-life balance was out the window for me. When I made the transition to private equity, even though I had had PE, VC, family office investors in my companies in the past, I had an MBA, all that good. I was an advisor at Riverside for four or five years. The learning curve was just as steep. You know, you I was being put into a an ecosystem where this is all these folks have ever done, right? And so as an outsider,

I I was on that steep learning curve. I used that same process as I did as a new CEO, but I did something very different this time. I kept a journal. And anytime one of my colleagues used a phrase or an idiom that I didn't quite understand, I wrote it down. and I kept this as a living document, you know, a little bit about, you know, about the about the phrase, you know, what it meant, how it was used.

And I kept that over over the years, speaking you know, speaking at conferences, meeting other PE firms, i bankers. I'd always come back with entries to my journal. And I was at Columbia late 2021 and a professor asked me about my crazy path into private equity as a as a scientist originally starting my career, and how did I acclimate? And I shared with him this tool that I used, this journal that just helped me along the process. And he stopped me in my tracks and he said, You know, you've done something

 

Mike Magliochetti (29:50.763)

really, really different here. Many of my students, as you look around, they'll they'll go on and work for PE or VC firms, they'll work for companies that are funded by PE and Venture Capital. You should really think about turning that journal into a manuscript for a book. And so rounding the corner on 2022 I decided for my New Year's resolution I was going to make a run at it. And I picked my head up two years later and I had about three hundred and fifty pages. and knowing nothing about publishing again

 

Shiv (30:15.605)

Hm.

 

Mike Magliochetti (30:21.182)

Leveraging this network, which is our superpower, right? networking. I managed to get in front of a few literary agents, one of whom took me on and helped shepherd me through a process to get the book published. But the book is really it's designed to bridge that gap between executive leadership team members and venture capital or private equity investors to really pull the curtain back in a tongue-in-cheek way.

To the nuanced language that's used, you know, the circumstances that are encountered, the decisions that are made, and at the same time, you know, being educational, but also being entertaining at the same time. And there the book consists of about 200 plus of these micro cases, micro stories, each centered around sort of this nuanced language that's used that I came across in my 20 years as an operator, dealing with PE and VC investors.

And also as an investor on the other side.

 

Shiv (31:20.575)

Mm-hmm. Mm-hmm. Well, that that's great. I mean, there's gonna be a ton of great stories and experience, and I'm looking forward to getting my copy too. So we'll be sure to include that and everything else in the show notes. And Mike, with that said, thanks for coming on and sharing your wisdom. I think especially for the operating partners that listen to this podcast, I think hearing how you approach this and your experience and how Riverside is leveraging that to help your companies. I think I think that's fantastic and a lot of PE firms should be doing the same. So appreciate coming on and sharing all this.

 

Mike Magliochetti (31:46.925)

Shiv, thanks so much. This is a this is a lot of fun. Thanks. Yeah.

 

Shiv (31:50.168)

Thanks.