Recruiting software company Virgil was just three years old when founder Ron Mitchell went looking for an acquisition that would allow the business to scale faster. But, like many young firms, the Chicago-based Virgil, which matches workers with employers through testing, lacked capital. He did not lack experience, though, which has plenty of value in itself. "We're not your 23-year-old CEOs," the 49-year-old says. "It's great to invest in the dream, but you have to look at fundamentals."
His fundamentals said no to venture capital--too much focus on hyper-growth and not enough emphasis on cash flow. Mitchell had been down that road before as both an investor in the late 1990s and a serial entrepreneur in the career-development industry since 2002. And his acquisition target--a hospitality-talent-recruiting company called Hcareers--was being divested by a public company called DHI Group. He'd have to orchestrate a complex carve-out.
Knowing he'd need help, Mitchell brought in a friend, Doug Tutt, as a partner. Tutt had been COO of CapRock Communications, which had done a deal with Houston-based PE firm Genesis Park in 2010, and as Mitchell says, "There's nothing better than knowing [them] personally." Plus, Genesis Park had a track record with carve-outs.
In May 2018, Genesis Park took a minority stake in a new company called Virgil Holdings, which owned both Virgil and the newly acquired Hcareers. As part of the $7.5 million deal, Mitchell and Tutt (now Virgil's COO) retained control over a company with over $10 million in sales. "That is not often characteristic of private equity investors," Mitchell explains. "And there was a healthy back-and-forth around that."
In a sense, Mitchell got lucky. Peter Shaper, Genesis Park's founding partner, is comfortable with not having voting control. He bets on owners. "We know that the guys running the business day-to-day, leading the team, feeling the culture, and being in front of the customer are going to make better decisions than I can," he says, noting that 10 to 20 percent of his deals involve minority stakes.
Still, Shaper helped build Virgil Holdings' strategic timeline: a short-term plan, a medium-term plan, and a long-term plan. The first challenge was to turn Hcareers--which had previously relied on DHI Group's centralized HR, legal, accounting, and IT services--into a self-reliant company.
Next up is integrating Virgil's technology into Hcareers, a process Shaper concedes is taking longer than expected. That could delay the long-term goal of market dominance, which depends on how Hcareers' established 2,500 customers and clients--including major hotel brands like Marriott, Hyatt, and Hilton--react to a new platform. If it lands well, Genesis Park plans to invest more to help Virgil Holdings scale. If it doesn't, Shaper says he'll invest in whatever course correction is necessary. He has no timeline for an exit.
That capital is obviously important, but Mitchell says he values Genesis Park's counsel as much as he does its financial resources. Recently, he's been taking advantage of the firm's marketing team to work through the complexity of combining two businesses and recrafting them. "We probably speak to Genesis Park every week," Mitchell says. "Not because we have to, but because we want to."