Buying Family Businesses Without Losing Their Culture
On this episode of the Private Equity Value Creation Podcast, host Shiv Narayanan speaks with Sequoya Borgman, Founder and CEO of Borgman Capital. They examine how investing in lower middle market family and founder-owned businesses differs from traditional private equity models. Sequoya explains Borgman Capital's approach to long-term holds, using special purpose vehicles to maintain flexibility beyond standard fund lifecycles.
He shares how the firm evaluates 1,500 cash-flowing businesses annually to acquire two or three, prioritizing strong employee cultures, community alignment, and sustainable operational stewardship. The discussion covers practical methods for professionalizing legacy manufacturing and industrial businesses, managing founder leadership handoffs, structuring risk-aligned deals, and executing targeted value creation plans without disrupting core operations.
Watch or listen to the full conversation between Shiv and Sequoya to learn more about long-term value creation in the lower middle market.
Key Takeaways
Flexible Hold Periods Drive Better Decisions
Traditional private equity funds operate on fixed ten-year lifecycles, which often forces business exits within two to five years. For closely held family businesses that have operated for generations, short-term hold periods can disrupt continuity. Borgman Capital addresses this by structuring acquisitions through special purpose vehicles (SPVs). This strategy provides an indefinite fund life, allowing capital to remain invested as long as the business generates steady returns. Liquidity needs for LPs are met through early buyouts or redemptions when necessary. Avoiding artificial exit horizons ensures operational decisions prioritize multi-decade health over short-term financial packaging.
Identify One or Two High-Impact Initiatives
Attempting to execute too many operational changes simultaneously can overwhelm a leadership team. Management teams in lower middle market companies are deeply tied to day-to-day operations and rarely have the bandwidth to tackle extensive transformation checklists. Effective value creation requires identifying one or two high-impact initiatives early, such as adjusting pricing, improving sourcing, or addressing customer concentration. Borgman Capital guides the overarching strategic direction while allowing company management to focus on daily operations, implementing operational changes gradually over three to five years.
Every New Dollar Invested Must Deliver a Clear Return
Legacy businesses in industrial or manufacturing sectors frequently lack sophisticated institutional infrastructure. Upgrading core functions, such as implementing a new enterprise resource planning (ERP) system or upgrading financial leadership from a controller to a CFO, adds direct overhead cost. Every added dollar of overhead must deliver a clear return within two to three years. Capital investments in systems or leadership, such as hiring multiple sales representatives to replace a founder's personal network, are evaluated based on their ability to protect customer relationships or unlock tangible upside.
Protect Cash Flow and Pay Down Debt
Achieving targeted private equity returns in lower-growth legacy industries does not require aggressive top-line growth. In a standard leveraged buyout structured with 50% debt and 50% equity, holding a cash-flow-positive business for five years while using its steady cash flow to pay off debt doubles the equity investment. Modest expansion from industry growth, inflation, or light margin improvements enhances these returns. Because leverage creates vulnerability to operational disruptions or macroeconomic shocks, protecting cash flow stability and paying down debt rapidly serves as the primary risk management tool.
Questions Addressed in the Conversation
How do you manage the risk of a founder stepping away from a family business?
Managing an ownership handoff is the single largest risk when acquiring family businesses, as founders often hold deep institutional knowledge and personal customer relationships. Sequoya notes that Borgman Capital prefers gradual transitions spanning two to three years, utilizing deal structures like seller notes, earnouts, rollover equity, and board seats to keep sellers aligned. If an owner wants to exit immediately, the added risk is priced into a lower valuation multiple with contingent structures to ensure the seller shares in transition risks.
How do generalist private equity firms provide operational guidance across different industries?
Generalist investors bridge industry-specific knowledge gaps by building dedicated outside boards composed of seasoned sector veterans for each platform acquisition. Sequoya explains that while Borgman Capital provides strategic direction and portfolio-wide best practices, these outside board members and specialized consultants supply deep vertical expertise. This structure allows the firm to support management teams across varied sectors, from manufacturing to software consulting.
From the Conversation
“Our best investments have been where the owner really cares about their employees. When businesses care about employees, employees care about customers, and the businesses do better.”
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This transcript has been edited for clarity and readability. Please refer to the original podcast recording for the complete conversation.
Podcast Introduction
Shiv Narayanan: Welcome to the Private Equity Value Creation Podcast, where we interview leading investors, operators, bankers, and advisors to help you answer one question: How do we increase the enterprise value of our companies? My name is Shiv Narayanan, and each episode I will dive deep with a guest to help you become a better value creator and capital allocator.
My guest today is Sequoya Borgman, Founder and CEO of Borgman Capital. What I really enjoyed about this conversation is that Borgman Capital invests in companies that are very different from most private equity firms. They invest in manufacturing and a lot of other legacy industries.
I really appreciated Sequoya's approach in terms of how they look at buying and holding these companies while focusing on the cultural and people sides to ensure great business continuity, minimize risk, and grow these companies long-term. It’s a refreshing take in the private equity world, where people are often bound to hold periods and returning capital to LPs, which can sometimes lead to short-term decision-making.
Borgman Capital Background & Investment Focus
Shiv Narayanan: Welcome to the show! Why don't we start with your background and the firm, and then we'll go from there?
Sequoya Borgman: Happy to start there. Before I launched the firm about a decade ago, I spent 18 years in public accounting, really working on transactions across the board, including a lot of private equity transactions. After doing that for almost two decades, I decided to leave and launch a firm, and we haven't looked back.
We've bought 20-plus companies since then and have grown a nice lower middle market private equity firm that invests primarily in family or founder businesses all over the country. We look at businesses with under $150 million in revenue and under $20 million of EBITDA. At this point, we've got five locations around the country and 15 people on the team. We are focused on established family businesses—some of which have been around for generations. We've invested in a lot of industrial and food businesses, but we are very industry-agnostic. We also have a data analytics and Snowflake consulting business, so it spans across the board.
Shiv Narayanan: What I found interesting looking through your portfolio is that a lot of the companies you are deploying capital into are more traditional markets—not necessarily software or B2B technology companies. What is the focus there in terms of the types of companies you're investing in?
Sequoya Borgman: With my background in accounting and finance, I focus more on the cash flow of the business rather than the vertical. We look at nice, steady, cash-flowing businesses that aren't overly cyclical, have good management teams in place, and can bear the leverage we put on them when we acquire them.
That's really what we're looking for: businesses that fall nicely into a leveraged buyout model. We are typically the first institutional investor in these businesses. Because they are all family and founder businesses, we are focused on that relationship rather than the specific industry.
Deal Sourcing and Sifting Through Potential Acquisitions
Shiv Narayanan: How do you vet these different types of companies? Beyond the financial analysis and figuring out that it's a cash-flow-positive business, what traits are you looking for?
Sequoya Borgman: We look at about 1,500 companies a year to buy two or three. You know when you see a nice business based on their numbers, but then you have to meet with the family and the founder. You see if interests are aligned, not just for the transaction, but for the long term.
If a founder really cares about their employees, their community, and the charities they support, those are the types of businesses we like to buy. We are more of a long-term hold firm. We're looking for businesses that are going to be around for the next three, four, or five decades. We look through a lot of businesses to find a couple of real diamonds in the rough.
Long-Term Holds and Investor Alignment
Shiv Narayanan: When you say a long-term hold, is there a threshold or limit before which you want to exit the business?
Sequoya Borgman: From my perspective, finding really good businesses is the most difficult part of what we do. There's no real reason to sell a strong-performing business just to redeploy that capital into another business that is hard to find. We can hold long-term in the deals we do. It's not a two- or three-year flip like some models; it's a longer-term hold strategy.
Shiv Narayanan: How do you deal with that on the investor side with LPs who are funding these transactions? Are you trying to hit benchmarks for specific funds, or are you deploying your own capital?
Sequoya Borgman: It's my own capital and my partners' capital, but we also have over 500 LPs who have invested with us over the last decade. For the most part, we set up each new platform as a special purpose vehicle (SPV), which allows for an indefinite fund life where we can hold longer than a standard 10-year fund life.
We will buy out investors early if someone needs liquidity through a redemption or buyout transaction if warranted. Personally, I am often the largest or second-largest investor in these deals. I don't see a better place to put my capital these days than in these nice, closely held businesses.
Community, Culture, and Value Creation
Shiv Narayanan: You mentioned that you look at companies that are actively involved in their communities or contributing to charities. What is your philosophy on investing, and how does that part correlate to performance?
Sequoya Borgman: Our best investments have been where the owner really cares about their employees. When employees feel cared for, they care about the customers, and the businesses perform better. If we maintain what the owners built and act as good stewards, those transactions do very well for us.
We continue supporting local charities and employees while trying to grow the business. Some funds enter with a rigid value creation plan to cut costs or squeeze margins. Our plan is to buy really good companies, support strong management teams, and stay in for the long haul. A lot of best intentions don't necessarily turn out the value creation you expect, so our goal is to buy great businesses and try not to mess them up.
Shiv Narayanan: That approach reminds me of the book Small Giants, which discusses businesses tied deeply to their communities, suppliers, and employees. Talk about your value creation philosophy and how it differs from traditional private equity.
Sequoya Borgman: We have the same toolkits as other private equity firms, and we have a value creation lead on our team who establishes the value creation plan. We look at traditional levers like growing EBITDA, increasing multiples, and rollup strategies.
However, we are supporting strong management teams in companies that don't transact very often. We've bought companies that have been in the same family for over 100 years. Most business owners have options; they can hire a professional management team and step away if they want to retire or move. We focus on the business owners who want to take some chips off the table and partner with us. The specific value creation plan depends on the business—whether it involves organic growth or strategic initiatives.
Board Construction & Operational Support
Shiv Narayanan: Because you are industry-agnostic, how do you determine which operational levers to support during the vetting and ownership process?
Sequoya Borgman: Even though we operate as generalists, we assemble a strong outside board of industry experts for every single business. Board members know that specific industry inside and out, and we rely on specialized consultants within our network.
A lot of the value in lower middle market businesses rests with the owner. These companies often don't have the resources of larger middle-market firms, so we actively share best practices across our portfolio. Even across disparate industries, there is significant overlap in common operational challenges.
Shiv Narayanan: How often do you require owners to stick around after the investment?
Sequoya Borgman: Having them stay is our preference. Some stay long-term, while others transition quickly. In those cases, we work with them to find a successor who fits culturally.
The biggest risk in investing in family businesses is the ownership transition. The owner is often so involved that replacing them might require hiring two or three people. There's always a risk of losing key customers or employees during that shift, so we handle it with kid gloves. We support the owner and keep them happy as long as they are willing to run the company, and when they are ready to transition out, we work together to find the right replacement.
Executing Value Creation Plans
Shiv Narayanan: How much of the operational plan is led by your firm versus trusting the management team to run with the opportunities they see?
Sequoya Borgman: Our responsibility is the big-picture strategy. Most management teams are focused on day-to-day operations and only have the bandwidth to focus on one or two major strategic items at a time.
We identify one or two value creation initiatives to implement shortly after the investment—whether that's pricing, sourcing, production, or addressing customer concentration. Even if we have a list of ten things we'd love to do, we know the team can't implement that many changes at once without getting overwhelmed. We slowly implement the top levers while the management team stays focused on running the business.
Professionalizing Legacy Businesses
Shiv Narayanan: Given that these are legacy industries like manufacturing or distribution, how do you approach professionalizing these companies?
Sequoya Borgman: The finance function is usually the primary area we focus on first. We will often bring in a new CFO or a higher-level controller. We also implement new ERP systems and standard processes where necessary.
We are preparing these businesses for the next level so that larger private equity firms or strategic buyers won't have to do the heavy lifting of transitioning from founder leadership to a professionally managed company. We pace this transformation over three to five years rather than trying to do everything in the first 90 days.
Shiv Narayanan: Professionalizing requires upfront investment that can slow things down short-term. How do you evaluate that trade-off?
Sequoya Borgman: For every dollar we spend, we need a clear return within two to three years. We don't spend on consultants, CAPEX, or infrastructure unless there is clear upside or it is essential to prevent losing business.
The largest investments usually go toward building new leadership teams. Bringing in executive talent adds meaningful cost. For example, we bought a company where the owner was the primary salesperson. We had to hire four or five salespeople to replace his individual output, which added significant costs. Fortunately, the business grew to compensate for it, but team expansion is a major investment that must deliver a return.
Leverage, Returns, and Risk Management
Shiv Narayanan: In traditional tech or SaaS, growth rates are fast, whereas legacy industries might experience single-digit growth. How do you underwrite returns when adding operational costs in lower-growth sectors?
Sequoya Borgman: We don't rely on massive top-line growth to achieve strong returns because of how these transactions are structured. If you buy a business with 50% debt and 50% equity and hold it for five years while the business pays off that debt, you double your equity investment without needing high growth, provided cash flow remains steady.
That is the core benefit of the leveraged buyout model. Modest growth from industry trends, inflation, or slight margin improvements yields great returns. Unlike high-growth SaaS businesses that carry minimal leverage and rely entirely on rapid expansion, our model carries lower growth requirements to hit our return targets.
Shiv Narayanan: How do you protect against downside risk in a leveraged structure?
Sequoya Borgman: The primary downside risk is making changes with good intentions that inadvertently disrupt the management team, hurt customer relationships, or reduce margins. In a leveraged deal, operational disruption poses a bigger risk than missing out on potential upside.
To manage macroeconomic risks or black swan events, you have to focus on what you can control. We work to delever the business as quickly as possible, pay close attention to business fundamentals, and stick to proven management practices.
Managing Founder Transitions and Key Man Risk
Shiv Narayanan: In legacy industries, revenue is often driven by personal relationships or the founder's network. How do you transition a company away from founder-dependent revenue toward a self-sustaining pipeline?
Sequoya Borgman: The best way is to do it gradually over two or three years. We structure deals with rollover equity, earnouts, or seller notes, and we keep former owners involved on the board so they stay connected to the business. If a customer issue arises, having the founder available to step in protects those key relationships.
If a founder wants to take all their cash out and step away immediately, that carries higher risk. Those transactions trade at lower valuation multiples, which reflects that added risk. We build contingent structures into those deals so the seller shares in the transition risk.
It's similar to managing customer concentration. You evaluate the business with your eyes wide open, price the risk into the deal, and work to diversify customer concentration post-acquisition through organic sales growth or add-on acquisitions.
Preserving Company Culture
Shiv Narayanan: How do you approach preserving company culture when an original founder steps away?
Sequoya Borgman: Culture is deeply established early in a business's lifecycle and is very difficult to alter. When a family has run a business for generations, that culture is embedded. Rather than trying to force a cultural shift, our approach is to protect the foundation that made the company successful while supporting the team with the tools they need to continue growing.
