This week on the podcast Matt continues the Capital Allocators series by talking with Clete Brewer, managing partner at New Road Capital Partners. During the episode, Clete walks through New Road Capital Partners and their investment verticals of supply chain, logistics, transportation and retail tech with a focus on opportunities for scale and growth. Matt and Clete go on to discuss the model at New Road that brings together both operators and investment experts when evaluating an investment. New Road’s operating partners include former leaders in logistics and tech for Walmart, Family Dollar, JB Hunt and more. They wrap up the discussion by talking about what Clete looks for in CEOs that they invest in as well as operating partners and members of their team.

Learn more about New Road Capital Partners - https://newroadcp.com/

At the stage we invest in that's not easy to do, right? These companies are sub 20 million in revenue. And so there's still a lot of risk. So you have to figure out ways to de risk that and that's why you know, the investment team being as important as the operating partner team, as we underwrite these, these companies.

Excellence, professionalism, innovation and collegiality. These are the values the Sam M. Walton College of Business explores in education, business and the lives of people we meet every day, I'm Matt Waller, Dean of the Walton College and welcome to the Be Epic podcast. For next few episodes, I will share my conversations with capital allocators in the seed, venture and private equity space, they will discuss how their capital allocation works, and provide tips to entrepreneurs on how to stand out. I have with me today Clete Brewer, who is managing partner, New Road Capital Partners. He has an incredible experience. He was CEO of Staffmark, and he took it public in 1996, they grew from 120 million to over 1.2 billion through organic growth. And they closed 40 acquisitions from 1996 to 2001. He has tremendous experience with small to large companies taking small companies. And growing them he was President of Sports Clips from 2002 to 2010. And grew it from 42 stores, to 720 stores. So he has a lot of experience scaling companies. And now he runs a investment company, New Road Capital Partners, that helps companies scale and grow and succeed. Thank you so much, Clete, for taking time to visit with me, I appreciate it.

Always a pleasure, Matt.

Well, you know, Clete I, of course, I'm familiar with a lot of people on your team. And I also didn't mention, you're also an alum of our college, the Walton College of Business, we're very proud of you. You have assembled an incredible team around you, which is the mark of great leadership, trying to find the right people to put on your team. But you also hire a lot of our students, both as interns and in full time positions. And I'm looking forward to talking to you about your investment strategy. And we know that you have many funds through this through New Road Capital Partners. And I don't want to talk about fund for given the stage you're at from an SEC type perspective. But I would like to talk about the other companies at various points. I'd like to talk about your team, you know, how do you select industries and companies within those industries, and kind of investment sizes you're looking for, et cetera, et cetera. But I know every time I talk to you, I always learned something. And I think that you're going to be able to add a lot of value to our listeners. So thank you.

Thanks Matt-

So, So Clete. Let's start. Let's start a little bit maybe I know one thing that you're unique at is you have very clear investment verticals. And you use operating partners as a focus of your strategy. Would you mind talking a little bit about that?

Sure. When we started New Road, my original founding partners were Doug Degn, who was the chief merchant at Walmart, retired and Jeremy Wilson, and Jeremy was, had just had some really good success with an exit at Rockfish to WPP Global. And Jeremy and I got together then Doug came into that, to that to that group. And we, we had this operator led kind of focus and we thought that would be a differentiator in the private equity markets having that operator background that a lot of CEOs and entrepreneurs could learn from, you know, the, the scar tissue that we gathered over the years and no matter you know, who you were within our organization, you know, if you're an operator, you've had some scar tissue along the way, it's not all been wind at your back. And so we felt like that was a really good thesis and then we really, over the years kind of crafted it to narrow the focus to supply chain logistics transportation, and retail tech, along with some CPG high growth, so very growth oriented focus around anything within the supply chain logistics transportation retail tech world, which obviously being in Northwest Arkansas, you're kind of at the capital, you know, of that world. And there's just a lot of talent, and innovation and companies around that space that that we learn from. And we always grew up as operators, what I call with a focus on the voice of the customer. And that voice of the customer, is really what the operating partners kind of, you know, validate for us, and then also just the network they have, and listening to the market. So you asked me, you know, how do we decide what what areas in segments to invest in, because if you look at supply chain, logistics, transportation, retail tech, it's a trillion dollar plus industry. So it's very fast and huge. But we try to narrow it into areas where we think there's things on trend, things that are going to be here for a while, a lot of disruption, and opportunity for scale and growth. And, obviously, then finding the right teams around that space. So we sit down with our operating partners, which include the former CEO of logistics for Walmart and former VP of international supply chain for Walmart, includes the president of General Mills, Max division, it includes the CIO, former CIO of Family Dollar, and includes former senior VP of IT at JB Hunt, Tracy, who's actually now a partner with us. And in fact, you introduce me to Tracy Black, a little bit over five years ago.

Yep.

She started off as an operating partner and now full time partner of the firm. And so that operating partner, we have the former CEO of Starcomm with the media and and technology background as well, on that team, and then, you know, recently the head of consumables and health and wellness at Walmart, who ran about 80 billion of Walmart's US business was also on that team, who's now president of a CPG, large CPG company. We leverage that team every Monday to they vet companies for us, we we say, you know, is this something that you would use as a large enterprise customer? They help validate whether or not you know, that's the right sector sector to invest in. So when we sit down and talk about supply chain, we may focus on an area like warehouse management systems and software systems that are are fast, nimble, quick to integrate, you know, to help kind of high volume transaction fulfillment, which is a company we looked for. And so visibility to the supply chain is really critical over the last, you know, year. And when we looked at certain areas like labor in dealing with hiring and retaining frontline workers or workers within the supply chain area, that's been a problem for a decade, and is going to be a problem for another decade. So these are themes that we listen to customers listen to our operating partners, and then narrow the focus of what areas we're going to invest in within the sectors. And in those areas, like a TMS system, for example, transportation management software, we looked at, you know, 10, to 15, companies with various offerings to try to find the best one that we can find. And we feel like we have an unfair right to win there with people like Tracy, Chris Sultemier, Gary Adams, the team that we have looking and validating whether or not that company and its solution, you know is strong, and then when we do customer calls, who better to do those customer calls than the peers, to those customers, you know, as part of that validation during diligence. So, yeah, the operating partner model is really key and critical to New Road and we'll always be that way. And we've we've carved economics out to incentivize those entrepreneurs. Many of them are in their 50s. And but I've had 25, 30 year careers at very successful organizations, what I like most about those organizations, they've been entrepreneurial through those years, they created billion dollar divisions from scratch while they were there, and that's really applicable to the size of the companies and the scale of the companies that we invest in.

You know, when I look at your, your team, but also these operating partners, I mean, it's really impressive what you've created. A lot of the listeners may not realize, for example, Chris Sultemier, you know, he was EVP of Logistics at Walmart, you know, and I remember I first met him back in 1995 I think it was. He was, I don't remember his title, but he was over replenishment for Sam's Club and he hired me to do some exec ed training for them way back then. So I followed his career. He's, he's been through every area of supply chain logistics that you can imagine. But he was also chair of the Supply Chain Management Research Center back when I was department chair of that department. And I know his, the richness of his understanding could be the best in the world. It would be hard to find someone with more understanding of the, you know the practice of logistics and supply chain management than Chris.

Yeah, West Point grads are aren't too shabby either. They tend to be great leaders and overachieve, which I think Chris would tell you that that he did. And I think that that's pretty, that's pretty much what we look for in CEOs of companies that we invest in. That's also what we look for. And operating partners, is a collaborative group, humble, but yet very successful. I'd be remiss if I didn't say, while we were operator led, and we really kind of focused on the operator level of, you know, excellence and hiring the best operating partners. About almost five and a half years ago, six years ago, we focused on the investment team being just as strong and trying to build that out. And so we were able to bring in somebody with a background, who's now one of my partners, Chris Ladd, who had a background at TPG and KSL Capital, which spun out of KKR. And then, you know, was on the team at Walmart and the corp dev team that bought jet.com, along with Bonobos, and shoe.com, and some other companies, and so that he coming in about five and a half years ago, about the same time Sultemier and Tracy Black did kind of become the operating partners, was a real key turning point for New Road and in our team. And then we just have been very fortunate to hire the best of the best from the Walton College, coming out of usually the, you know, portfolio management class and finding those students as interns, working with them for a year or two before they get out of school, bringing them on on board as an analyst right out of college. And I think today we've got one Vice President who started off as an intern out of your MBA program. And we've got a couple of Senior Associates, and a couple of analysts and three interns, all Walton College students who, you know, we brought on a gentleman from Barclays out in New York about two and a half, three years ago, who's now a partner also, he and Chris, his name is Stefan Stearns, they run the investment team. And he said, you know, the kind of talent we're getting from the Walton College, and I'm telling you this, you know, hopefully you get a raise, hopefully, the new chancellor hear this story. The talent we're getting out of the Walton College is as good as what he was getting at Barclays, in New York. Think about those guys, they come out of school, they're interning with a private equity fund. And in their interactions are with Chris Sultemier, Tracy Black, Gary Adams, you know, Michelle Meyers, who was the president of Snacks at General Mills and bought Planet Foods and Annie's and Lara bar and all those companies, I mean, getting that interaction along with the operators and the other partners, I think they're getting great exposure, but they're also just really driven, which is great to see, you know, it's just wonderful and refreshing to see, I think you're driven if you're trying to get into Portfolio Management class anyway, which is a great thing. So it's a great bar for us to look at. But we're really excited about our investment team and how it's advanced to kind of keep up with the operating partner team that we have, so that we have a really good balanced investment team.

Now, for students who've never built teams like this, and most of them have not tried to build big teams now some have built smaller teams and, you know, for various things they work on as students. But putting together a team like this is not easy by any means. I mean, finding the best people is hard work. And I know I mean, you've got I mean your all of your operators are amazing. All of your your investment teams amazing. I know only a few people on your personally on your operating team. And I know just one other one Doug Degn, he's a very famous, he was EVP of merchandising for Walmart for many, many years. He started their pharmacy.

He when he ran pharmacy, and then he ended up kind of being cross trained in merchandising, and probably is most famous for being the first chief merchant at the superstore, but the supercenter when they combined food and hard lines. And so that was a big experiment and a big step for Walmart. And you know, Doug, I always say I think Doug's last 10 or 15 years at Walmart, he bought like a trillion dollars worth of product or some kind of crazy number.

All of these people are remarkable and I would encourage, if you're listening to this, the website is newroadcp.com. If you go if you're really interested, and you look, you read their backgrounds, including Clete's, and I'm talking about both the operating team and investment team, you will be blown away.

It's refreshing, it's good. I mean, I think it's just, uh, you know, we look for teams that that were CEO, hires people stronger than themselves and surrounds himself with people who are better at marketing than they are better at sales and they are better at operations and accountability than they are. And that's kind of what Jeremy and I've done. And we've been blessed. And we we kind of have become a real, I would call it diversified, very open, inclusive, for sure, but also just, you know, well rounded as we look across, you know, the sectors that we're going to invest in and what operating partners, we're going to add for future growth, I think that group is going to make way better decisions than one of us would have made on our own.

Well, and I can imagine the strategy of having your team, you know, investment experts with operating experts, looking at companies, and then once you invest in them your ability to coach them on how to, you know, pivot, or change their marketing or change their message and go,

Yeah, yeah, go to markets broken, you need to fix it, here's, here's what I see. And that knowledge is very valuable, I think it helps us with CEOs who are looking for more than just capital, they're looking for connectivity, operation expertise, they're looking for a network, they're looking for people that can help them find good talent. And I think we try to do our best to check those boxes, we don't invest in a lot of companies, probably three to four investments a year tops, and, you know, over the years, you know, over 10 years now, we probably still have actively 16 companies, you know, so we've, we do a manageable amount of companies so that time and and focus can be spent there by operating partners in a meaningful way. We we've kind of structured it to where there's a really good operating partner, usually ones involved either at the board level, or as an observer, with the company, dialoguing with the CEO, you know, on a frequent basis. And then a lot of times, other operating partners with certain skill sets come together and help on certain projects where, you know, with what that what that product development is going to look like in the timeline and how to best get there and what skill sets they need. And what do they need a button up on the technology side to make it truly enterprise scalable, and, and you know, investable. And so those are some areas where you know, the rest of the team will jump in and everybody's team incentivized, so so it doesn't matter. All companies would benefit any operating partner so they can help any company. It doesn't have to be a logistics company for Chris to help. And as you know, most CPG firms struggle with logistics and transportation costs. So our teams seem to be very valuable, even with the transportation and logistics background on the CPG firms as well.

You, you've clearly got clear verticals like supply chain logistics, retail and CPG, technology, marketing technology. How did you select those verticals?

Yeah, I think a lot of that was when we sat down with Tracy Black and Chris Sultemeier, about six years ago, we kind of knew that logistics and supply chain. There was some lot of legacy systems that had been around a long time. They weren't cloud based, there were opportunities for solutions as as goods were moving closer to the consumer, you know, a lot of freight forwarding, how do I get next day delivery? How do I get same day delivery, all these kinds of new demands in the marketplace that are going to go beyond just the COVID, you know, lock down that we had, it's going to, you know, continue to evolve, that creates a lot of opportunity for disruption in technology. And we found that there was a lot of opportunity in those spaces. And there's a lot of talent around that space in Northwest Arkansas, where we are. And so building our team around that that's kind of become an area of focus. And it's funny when we first thought about it, he's like, okay, does this going to be a decade worth of investing? Or is it two, and as, as this area is so big and vast, and there's going to be new things going on with robotics and machine learning and AI and electric vehicles and things along that in the next couple of decades that there will continue to be new middleware opportunities, you know, other apps that are going to be created other products that are going to be improved, to be able to continue to be relevant within the supply chain, logistics, transportation tech space, making sure that that what we're investing in is on trend and will continue to be so for a pretty good amount of time.

Just as an example, one of the companies you've invested in, Emerge, which is a really impressive platform that helps shippers like CPG companies, retailers or any shipper, cope find carriers, which has been not only find them but vet them and compare rates, and all kinds of things. There are just so many variables that are involved. It's hard to make these comparisons and then make a decision. But I know Emerge is one of the companies I'm a little more familiar with that you, you've invested in, how long did it take to make that decision to to invest in them?

Digital freight brokerage was one area that Tracy and Chris, Tracy Black, Chris Sultemeier identified as as, listen, there's, there's a lot of room for growth here, a lot of opportunity to leverage technology, most shippers, you know, are stuck to 10 and 20 you know, companies that they're able to control a bid process on right, and, but they're not, but they're missing 1000s of other shippers that might be perfect for that particular, you know, lane or particular, you know, freight size. So, we set out to find a really good digital freight brokerage firm. Tracy reminded me that she probably visited with 40 different companies in the space before she found emerge. And she called me at the conference that emerge was at, that was actually I think it was a Freightways conference, I could be wrong. She said I found I found the digital freight brokerage and I was like, well, what's the differentiator and she said their shipper base, their shipper focus, they're focused on the shipper. It's a tool for the shipper to do not only spot but also contracted, you know, freight, and basically offer a solution that people are paying for, for that, you know, for the RFP process. And so it basically allows a shipper to go out and look at, you know, 10,000 different carriers to get the best rates, and that can be 10, 20% overall freight savings at the peak of some of these, you know, spot market rates, and during COVID and the some of the, it could be even higher than 20%. And so when you're spending, you know, some of these shippers spend $600 million a year on freight, you know, that's a 20% gets everybody's attention in, in a real hurry. 10%, particularly even, we're really excited about what emerge is doing with the RFP process, and allowing shippers to be way more competitive and getting carriers on boarded. But it also really helps great carriers that are small, become bigger, it gives them the opportunity to Fortune 500 companies that they didn't have. And these could be some of the best small carriers in the country that that shipper would have never heard of. And hopefully, you know, that's great for everybody. It's great for the small, small carrier who can do it really well. It's great for the shipper because they're saving money and hopefully eventually it's good for the consumer because freight costs are getting, you know, back to where they should be, really excited about Emerge and the team. He's building an amazing team. Every month I hear about, you know, a new leading expert from the brokerage industry or our transportation management industry that's coming on board and helping them scale.

This is another one of your overall strategies that's making a big difference. But backing up a minute to Tracy, for those listening, who don't know her. She managed, she was at JB Hunt for probably 30 years. I may not know the exact number but,

That's right 30 years.

She had she was like Senior VP of Information Technology. She had a team of I think about 1000 people. Her IT budget was close to 100 million. I don't know all the details, but I know her fairly well. And I know she is incredible. I mean, so she had you know almost 30 years at JB Hunt but before that she worked at Arcbest which was back then called ABF Freight which is an LTL carrier. So she knew because of her work, she knows LTL, truckload, brokerage, dedicated contract services, that's where companies shippers outsource their transportation to three PL and she also knows intermodal and she also knows final mile, her work in information technology gave her this incredible experience that helped her guide New Roads to an excellent company to invest in, the other interesting connection here that you didn't mention, but I think is important. There's someone I met a long time ago again, that now is the President of Emerge. He's only been president.

Oh George, yeah.

Yeah. George Abernathy.

Yeah, he started he's he's amazing talent that's doing really great things, helping them grow, Emerge, grow them smart. I think growth is great. But smart growth is the best growth. And, and George is all about smart growth. So I think Andrew late Lido, who's the founder of, of Emerge, I think it was really wise and bring in George on and I think he's, uh, he's, uh, another one of those, you know, talented people that we had network through Chris and Tracy, and everybody knew, George. And so when he came on the board, that was first step, and then when he saw the big opportunity to come on board full time as a president, that was that was a great moment for Emerge, continues to be.

Well, you know, George was at JB Hunt, of course, again, way back when

A lot of good DNA around Northwest Arkansas

there is he also was at logistics.com and Saber Group. And some of you who say logistics.com was a big thing during the.com, boom. And he's been with others, he was with Transplace for like, 12 years, Freightwaves for four years, and now he's at Emerge. But again, you take people like George and Tracy and people like that, and you put them together, their network alone could make a huge difference from you know, from a success perspective. And their knowledge, of course, makes a big difference. There's no, no question about that. So So I think Clete, that was kind of a good example, to kind of tie together your strategy of how you create your team and how you invest. That example shows it now I don't think again, I think some listeners unless you delve in a little deeper, you may not fully understand this, but when you look at it, you know, when you look at the verticals, that New Road is competing, playing in investing in supply chain, logistics, etc. These are really small worlds at the top.

Yeah, oh, yeah.

I mean, people know each other. And you're part of your investment strategy is to bring together these powerhouses to, to bring about success that ultimately delivers tons of value, not only to the shareholders and the companies, but ultimately to the consumers. Because if companies can move product and store product in a way that minimizes transportation, warehousing, inventory, carrying costs, minimizes stock out costs, etc, etc. The ultimate winner in the long run is the consumer.

I think everybody needs to realize that all these disruptive companies in this market, particularly as it softened, which it was probably always going to do after the big explosion of, you know, the COVID, you know, surge that moved a lot of technologies and things forward, I think you have to have a product that's saving money, and making people either, you know, profitable or more profitable, or at least holding their cost down so they can remain competitive with their own products in the marketplace. If there's no savings to using your products, switching to from, you know, a to b, you're not gonna get any movement in this marketplace. So there's got to be, you're adding, you're either gonna be adding top line in a serious way with your product or your your software, or you're gotta be optimizing. And taking some inefficiencies out of the marketplace and some of the costs, which is what most of our companies are doing, you know, if we're investing in a TMS system, it's to reduce costs and make it easier for consumers to, to buy products and have it delivered at their home, for example. And same in that in the warehouse management software space, or, you know, in the telematics space with platform science, one of our other companies, and how's that reducing costs to switch? Well, it's because you're able to use every app on one data plan, in most trucks were had multiple data plans back, you know, a decade ago. And now they don't have to do that. And now they don't even have to buy hardware because we're actually installing the hardware on an OEM basis in the truck. So you just turn our platform on and run whatever apps you want to run on it, including our own software. So another neat innovative company, real excited about them. Actually, Chris Sultemier is the chairman of the board of that company, non executive, but it's, it's a, all these solutions kind of where Tracy and Chris kind of looked at us and said, if I was back at Hunt, or if I was back at Walmart, this is what I would use. And that's kind of what we look for, from our operating partners. And then, you know, we still talk to existing employees at all these CPG and retail companies to hear what their pain points are. And then we, you know, draw a thesis under those pain points to try to go solve and find technologies that really work. At the stage we invest in, that's not easy to do, right? These companies are, you know, sub 20 million in revenue. And so there's still a lot of risk. And so you have to figure out ways you de risk that, the team can execute, how sticky is the business, how, how's the repeat business, all those kinds of things. That's why, you know, the investment team being as important as the operating partner team, as we underwrite these, these companies.

Well you mentioned, platform size, I think I met them through plug and play. I'm pretty sure.

Yeah.

And yeah, it's a very impressive technology. But again, having someone you know, like Chris Sultemier, to, to vet them for your investments is brilliant. He knows what people are looking for.

Yeah. And honestly, Chris and Tracy knew earlier that it was going to be successful. They could tell it was, but it was too early for us. Because it only had one customer at the time. And so it was really interesting. We probably could have even invested earlier in that. But we didn't. And we waited until they did their series A and had a you know, and help them get additional customers. So it became a little bit more diversified. But it's been a great success. But yes, yeah, that's one of the things. When you have the operating expertise on the team, they can sometimes see things before others, if that makes sense, then an investment team member and so it's just that balance of still underwriting it to your discipline. It's not easy to do, especially if Chris Sultemier and Tracy Black are telling you this is a really good investment.

Well Clete, we are so impressed with what you've created here at New Road Capital Partners. Congratulations on your great success. And thank you for being a wonderful partner of the Walton College business for so many years. I personally really appreciate you, so thank you so much.

Thank you, Matt, for all you've done at the Walton College has been a pleasure to serve on the Dean's Executive Advisory Board for a couple of decades now. And I'll tell you, I don't think I could get in to the Walton College anymore as a student,

Yeah right.

You guys have really raised the bar there. It's amazing. The talent that we see coming out of the Walton College is fantastic. And so continue with you and your team just we want you to know it's we've been really blessed to find some great talent there in the Walton College and continue to, will continue to do so.