Kyle Bradford of Latticework Capital Management
Q: What led to the decision to raise your initial fund? What were the indicators that you were ready?
Kyle Bradford: Steve Neumann and I started Latticework Capital Management (LCM) in 2015, when we did several pre-fund deals with various limited partners (LPs). As we were scaling these companies, we saw many reasons to raise a dedicated fund. First, we needed a larger stable base of capital to truly scale the companies to the size we wanted, starting at sub-$10 million of EBITDA (earnings before interest, taxes, depreciation and amortization) and growing them to $20 million-$50 million of EBITDA. Additionally, a fund would provide the resources to build out the team we needed to execute on our buy-and-build growth strategy, which can be hands-on and time-intensive. When going deal-by-deal, we didn’t feel we had the resources and capital to build a team and fully execute on our growth initiatives.
We recognized significant, ongoing opportunities in the lower middle-market healthcare sector, especially among founder-led companies seeking partners to accelerate growth. After years of cultivating relationships with management teams, industry executives and potential LPs, we were confident we could successfully raise and deploy capital.
Lastly, the healthcare industry was undergoing rapid change and consolidation, creating a favorable environment for value creation through organic growth and add-on acquisitions.
Q: What were the most important considerations for you when choosing LPs to pursue for partnership?
KB: We prioritize choosing partners that share our investment philosophy and strategy and will stay with LCM for the long term, not just one fund. So we sought LPs who shared our long-term vision and commitment to building value in healthcare companies. We also looked for LPs who could add value by offering strategic insights and industry connections to support our portfolio companies.
Q: What did you consider and prioritize when developing an investment strategy for your initial fund?
KB: Steve and I both led healthcare groups at larger funds, so we prioritized this industry. It was imperative for us to employ a “top-down” approach, identifying industry themes and trends, then targeting areas with the highest growth potential. We also emphasized the value-focused buy-and-build mentality in working with companies with sub-$10 million of EBITDA, being the first round of institutional capital investing at a reasonable valuation and encouraging our founder-owners to roll 25-40% of their equity for true alignment. We also focused on building best-in-class boards, providing operating partner support and building systems and teams to cultivate organic and M&A growth.
One example is American Veterinary Group, which expanded from a single clinic to more than 50 clinics by the time of our recapitalization with Oak Hill Capital and now operates approximately 200 clinics. Another example is Xpress Wellness, which we grew from 10 clinics to 58 at the time of its sale to Goldman Sachs, creating more than 600 jobs in the surrounding rural communities and expanding its service offerings to include behavioral health and other services. Xpress also provides medical services in 85 post-acute nursing home facilities.
Salt Dental Partners began with just two clinics in two states and now boasts a footprint of more than 175 clinics across 20 states. This growth has been driven by organic expansion and over 60 acquisitions to date. And at inReach, we have grown from 16 to more than 150 hospital relationships nationwide in rural communities with over 400,000 patient impacts in the last two years.
Q: How do you think about assembling your team?
KB: We look for team members with complementary skill sets, a collaborative culture and a track record of success. We focus on building a team with deep healthcare expertise, investment acumen and operational experience across healthcare subsectors. Our approach is fostering an inclusive environment, engaging internal team members and industry executives and operating partners to support growth strategies as well as infrastructure and operational improvements. We select deal team members for their proven ability to source, execute and manage investments, and their alignment with our values and long-term vision. We also have a stable of operating partners and are building out a resource group to provide support to our portfolio companies.
Q: What do you foresee with respect to LPs’ willingness to invest with emerging managers?
KB: The statistics speak for themselves. Many studies found that the top quartile of groups on their first few funds outperform the market. Look at the McGuireWoods Emerging Manager Conference: With 1,200-plus attendees, it is clear LPs recognize the opportunity to generate alpha by partnering with smaller companies and scaling them. Once companies get larger, the deals get more expensive, and the return profile for that part of the market is lower. Building trust and credibility with LPs is more important than ever, so alignment of interest and a clear, compelling investment thesis and path to value creation are key.
ABOUT KYLE BRADFORD
Kyle Bradford is a managing partner and co-founder of Latticework Capital Management (LCM). Bradford is a member of the LCM Investment Committee and is responsible for originating, executing and managing investments in middle-market companies across a variety of industry sectors, including healthcare services, pharmaceutical services, and medical tools and instruments.
He is a member of the boards of directors of Beacon Behavioral Holdings, inReach Health, Healthcare Building Solutions, Elixia, First Medical Associates, Salt Dental Collective, Institutes of Health, Kalon Aesthetics and Life Science Connect. He formerly served on the boards of American Veterinary Group, Xpress Wellness and Restoration Behavioral Health Group.
Bradford was previously a managing director and co-head of the healthcare private equity group at American Capital, a publicly traded investment company with approximately $21 billion of assets under management. During his tenure at American Capital, Bradford served as chairman of American Capital portfolio companies CML Pharmaceuticals, ECA Medical and Value Plastics, and served on the boards of directors of The Meadows, Scientific Protein Laboratories, Dynojet, Hospitality Mints, Future Food and Unwired Technology. Bradford was a board observer for Trinity Hospice and CCS Medical.
Prior to joining American Capital, Bradford worked in the technology investment banking division of Salomon Smith Barney in New York. At Salomon, Bradford specialized in equity and debt underwriting and M&A advisory assignments for companies in technology sectors. Before Salomon, he worked in the syndicated finance group of Banc of America Securities in New York.
Bradford received an MPA and a BBA from The University of Texas at Austin. He is currently on the Chancellors Council Executive Committee for the University of Texas System.