John McDonald, Senior Managing Director & Co-founder, Kensington Park Capital
In an interview with Invest:, John McDonald, senior managing director and co-founder of Kensington Park Capital, talked about the rapid growth of his firm, which is now the largest independently owned M&A-focused investment bank in the Tampa Bay region. “We are creating an entirely new business model for investment banking, and it works beautifully,” he said.
What have been the key recent highlights for Kensington Park Capital?
In less than 18 months, we’ve become the largest independently owned, private M&A-focused investment bank in the Tampa Bay region. We are creating an entirely new business model for investment banking, and it works beautifully. We are going to create something very unique and special in the investment banking world. We already have the infrastructure built out, have great clients, a beautiful pipeline of business, and are now recruiting the best of the best in the industry, many of whom are coming to us to join because they see what we are doing. It is all very exciting.
How do you perceive the M&A landscape in the region, and what is your strategy to navigate changes?
The M&A business in general can be very cyclical and is very much tied to the economy, interest rates, and the stock market. I’ve been asked this question many times over many years in up and down markets, and in my mind, there are two kinds of investment bankers: transactional bankers and relationship bankers. Transactional bankers are just worried about closing as many deals as fast as possible with little regard for building relationships, whereas we relationship bankers care very deeply about building long-lasting relationships.
For example, we were recently contacted by one of the largest bathroom remodeling companies in the country. That came about because seven years ago I sold a plastic manufacturing company to another company, and the CEO of that company and I became really good friends. Now he is the CFO of this remodeling company, and they want to expand, but they don’t have the resources to figure out a strategy for acquisitions. He called me to represent them, and now we are in the process of signing him up as a client. That is why when I am in a deal, I want to befriend all parties involved so that when the deal closes, I can host a big dinner party to celebrate, with the key goal of staying in touch. This allows us to develop relationships into strong friendships that are lasting and enduring. We are bringing in some very senior talent who have that same mentality, and with a rolodex of networks that they can use to bring in business. That is one of the fundamental differences between what we are doing here and our competitors.
For us, regardless of the market situation, because we are relationship-focused bankers, we are always bringing in tons of business, so from our perspective, it is a great market, and it always is, because even in down times, we keep our pipeline full. Other banks that are more transactional in nature and don’t have those types of relationships feel the ups and downs of the market, while we are more insulated.
What role does technology play in your operations?
As a recovering engineer, I am a huge fan of using technology. When we put this company together, we knew that if we wanted to have an international footprint, we couldn’t be a brick-and-mortar company because it’s expensive, and there is no reason to be a brick-and-mortar company in today’s world. We created the infrastructure so that anyone can work remotely from anywhere in the world. The benefit is that people are not restricted by geography. While we do have an office where local people can meet, it is small and is basically a place to meet with our local team members and clients.
Everything we do is in the cloud, and it’s all set up so that documents are secure and easily accessible to the right people. Additionally, we use the best CRM system and deal management software on the market called DealCloud. It is designed and built for investment bankers, and there is just nothing better on the market right now. For email announcements, we use Constant Contact, which is the top software for sending announcements. We are always looking for the best products on the market that allow our team to do their jobs at the highest level. We are also making use of AI. For example, our entire website was developed by AI, even the photographs. If you look at the section that talks about industries, it is all AI-generated, but it gets across the fact that we care about diversity despite our field being very white-male heavy.
One of the aspects of our business model is that we are made up of rainmakers, who bring in the business, and sausagemakers, who are the people who are doing the execution. What we have discovered is that there are independent contractors in the world who can handle all the various elements of deal-making or sausagemaking on a deal-by-deal, hourly basis. When you think about it, that eliminates the need for expensive brick-and-mortar offices, recruiting expenses and large salaries while still accessing top talent – 10 times better than what I’ve experienced in the past. On top of that, all of our independent contractors we currently work with are women, and their work quality is incredible. Instead of bearing huge fixed costs every month, we have variable costs that match our variable revenues. It also gives the contractors unlimited freedom to work wherever they want and not be restricted to work for us when we have no business for them.
The traditional business model for M&A- focused investment banks is not a good one and has always been lumpy — either you close a deal and earn a big fee, or the deal falls apart, and you get nothing. On top of that, you are also at the whim of the business cycle, which creates a ton of variables. Highly unstable and uncertain revenue paired with large fixed salaries and large fixed overhead is high risk. By aligning variable revenues with variable expenses, we can better navigate the business cycle and combat what you often see on Wall Street, which is hiring when times are good and layoffs when they are bad. That is a terrible model.
What are your top priorities for Kensington Park over the next few years?
The other unique aspect of our business, because of how we set up our infrastructure, is that it is infinitely scalable, without constraints. Our goal is to become the No. 1 privately held M&A investment bank in the country and we are well on our way. There are no limits to how big we can become, and we know enough talented people to recruit. When we recruit a talented person, we encourage them to use their networks to recruit others, creating a self-sustaining growth cycle.
Another crucial aspect is maintaining strict quality controls on the deals we bring in. Other firms might sign up anybody just to get a client and put them on retainer and get cash. They don’t really care about the closing of the deal. From our view, if we don’t have at least a 95% confidence level that we are going to get a deal closed to the satisfaction of our client, we are just not going to take it on. We don’t want to waste resources or expenses chasing windmills.
We want to build our reputation by executing high-quality deals. We’re also selective about the clients we work with and avoid no-name buyers because when we advertise, we want people to be impressed by our clientele, so we can continue to attract well-known blue-chip buyers for future deals. That is how you build your reputation as a top investment bank.
