How This Family Office Differentiates and Sources Deals

Bluff Point Associates is a family office founded in 2004 by husband and wife team Tom and Paula McInerney. Today, the Westport, CT-based firm has over $200 million in capital under management. The firm specializes primarily in control investments in fintech and health care information technology companies, particularly with SaaS or tech-enabled business models. They look for enterprise-focused platforms where the technology is essential to a business model — e.g., EMR companies in healthcare and trust processing companies in fintech.

We talked to Managing Director Kevin Fahey about how Bluff Point differentiates itself in a crowded market, how they source deals as a small firm, and the best parts of working in the lower middle market.

How many transactions do you do in a typical year?

Last year was heavy. We exited two companies and bought four. Five of the transactions were on the healthcare side and one on the fintech side. But typically we buy one to two platform companies a year and do two or three add-ons each year. We’d much rather put more money to work in an existing portfolio company  than do multiple new investments each year.

How is Bluff Point different from other family offices?

First, the McInerneys didn’t make their money by being in a manufacturing or service business. Tom is  an ex-partner of Welsh, Carson, Anderson & Stowe and has been doing this type of investing for decades, and Paula was the COO for Oppenheimer Funds.   So our family office brings significant and relative  experience to the table, not just capital.

Also, as a family office, we don’t have any outside capital. It’s all inside capital from the founders and the managing directors like myself. And so we have no time pressure to exit an investment. We can really focus on exiting only once we have achieved maximum value for shareholders.

Lastly, all of the managing directors in the company have technology-based experience. For example, I’ve gone through two tech related IPOs and was in corporate development overseeing roll-up strategies for a number of PE backed companies before I came to Bluff Point.

Tell me about your sourcing strategy.

We’re a small firm, and we don’t have a very large staff. Everyone at the company is at the executive level and we’re also doers at the same time. We work with investment bankers in our network to get our name out there and make sure people understand the type of deals we’re looking for, since we’re not a brand name in the VC/private equity world. We also go to some industry events and make sure to catch up with our network there.

We’ve been working with Axial for a few years now. At first I was just looking at the deal flow, but after about a year I decided to make a proactive effort to really leverage the platform and start working with the professional services team. I started asking questions like: Who are the relationships I should be cultivating? What are the meetings I should take when I’m on the road?

At first I was just looking at the deal flow, but after a year I decided to make a proactive effort to really leverage [Axial]… This strategy has led to at least two deals for us so far.

That strategy has led to at least two deals for us so far. One was ADS Data Systems, which we purchased as an add-on deal for a portfolio company called Consolo Services, a SaaS-based EMR practice management and revenue cycle management company in the hospice and palliative care space. Consolo was a 2015 investment. ADS Data Systems provides software solutions for adult day health care service providers.

We actually saw the ADS Data Systems deal on Axial in 2016 and were very interested, but we didn’t quite line up with the CEO on terms at that point in time. But then in 2018, the founder got back in touch with us and ADS had grown significantly since 2016 and we were able to came to terms, and we merged them into Consolo. The added scale and size of ADS within Consolo helped us sell Consolo to Well Sky at the end of 2018.

Axial also helped us close on another deal, with NetGain, which provides IT-as-a-Service for healthcare and financial services organizations. We closed that deal in 2016.

What’s your approach to working with management teams at your portfolio companies?

Our goal is to partner with management and work closely with them to build value. The ultimate goal is to have management feel comfortable enough with us that they’re reaching out to us more than we reach out to them. We have our routine meetings, too, but we want management to run the company. That’s not our responsibility.  We’re here to help guide them and mentor them.

You’ve been on both the operations and the investment side of the table. What do you enjoy about each role?

What I really liked about the operations side is being on the ground and building something. What I like on this side is working with the CEOs of multiple companies to think strategically about what we need to do to be successful and create value for shareholders, including founders and management. That’s really fun and interesting. We work with, generally speaking, lower-middle market companies, which means our initial investments are in companies with revenues that are sub-$10 or $20 million dollars. There’s a lot of excitement in companies when they’re that size. Many of the HCIT companies I invested in were $5 to $7 million in revenues, 40 to 60 employees. Seeing them grow to companies that were $25, or $35 million in revenues over a three or four year period is a lot of fun (and financially rewarding).