Michael Warady has recently closed on a pool of committed capital for his entrepreneurial and investment vehicle, Sylmar Group. Sylmar is a search fund on steroids and with a few twists. Warady and his partner, Peter Brooks (Harvard Business School 2014), seek to acquire multiple businesses in the water and wastewater sectors. Sylmar Group aims to solve the growing water quality and availability challenges by delivering resilient, cost-effective, decentralized water and wastewater solutions. Critical services for water (and the water cycle broadly) are fundamental to all facets of the economy, yet they represent a small fraction of the cost of doing business. These services are provided by a highly fragmented market of regionally dominant firms with owners and founders that entered into the water industry following the passage of the Clean Water Act (1972) and Safe Drinking Water Act (1974) and are now approaching retirement age. Sylmar will acquire high-quality, lower middle-market water and wastewater B2B service firms well positioned to meet the growing quality and scarcity challenges facing governments and businesses throughout North America.
In addition to acquiring a business to operate, Warady and Brooks plan to engage in a programmatic acquisition strategy to purchase multiple water-centric companies over several decades. “Peter and I both have experience across the water and wastewater industry and wanted to shift our focus from working as employees of larger organizations to becoming leaders and CEOs of our own firm. The search fund model was our starting point, but we added two specific twists that will help us meet our goals, align with the growth profile of our industry, and best serve our investors. Instead of a traditional search fund, we structured a long-term HoldCo vehicle that views acquisition opportunities in terms of decades-long investment timeframes, rather than years. This structure will allow us to build a compounding equity machine as we operate our business in perpetuity. There are plenty of examples - from Danaher Water Quality to Constellation Software- that illustrate how a long-term mindset plus a thoughtful M&A strategy creates true wealth. As part of this model, we plan to employ a programmatic acquisition strategy, seeking to reinvest cash flows from our business in order to purchase multiple water assets serially,” said Warady.
After considering various ways to be an entrepreneur, Warady landed on a long-term hold strategy for several reasons. “The best way to create value for customers, employees, shareholders, and ourselves was to try and build an enduring business over multiple decades. When thinking about our project, and our industry, Peter and I realized it wasn’t feasible for us to try and accomplish everything we sought to in a typical five-year holding period. In some ways, we would just be hitting our stride at that point, and it would feel premature and arbitrary to exit. Once we began to dive into the nuances of this long-term structure, we thankfully found the right investors who shared a similar vision as our own. Most importantly, we think our approach will provide the best solutions for our customers.”
Before founding Sylmar, Warady led infrastructure project development efforts and was a member of the growth-stage equity investment team at Aquatecture, where he developed centralized and decentralized water infrastructure projects, such as seawater desalination and wastewater reuse facilities. Prior to entering the water industry, Warady led international supply chain efforts for Clean Energy Associates, a solar panel procurement and quality assurance firm based in Shanghai. “I entered the water space a few years after experiencing firsthand what it was like to see how municipal water services have failed many populations throughout the world, and the US. These previous roles have taught me an incredible amount about the infrastructure sector as well as how to grow strong businesses, generally, and I am excited to apply these educational and professional experiences as Peter and I build Sylmar. We plan to build something that reflects our unique vision and values - it is important for me to wake up every morning and know I am working on something I know will make a difference ,” said Warady.
Yale was an influential experience for Warady. “I really enjoyed my time at SOM. It gave me the right background and foundation for this entrepreneurial effort. I was a joint degree with a Masters in Environmental Management from the Yale School of the Environment, so Sylmar is a reflection of my belief in the intersection between business and the environment. And, while Sylmar is first and foremost a commercial effort, I believe that we will have an opportunity to both do well and do good by tackling some of the major water quality and quantity concerns that are a feature of so many lives today. After graduating, Yale has continued to be helpful, as faculty members such as A. J. Wasserstein have been instrumental in helping refine Sylmar’s investment thesis and deal box. Furthermore, our anchor investor, Westerly Group, is a team of Yale College alums further demonstrating how Yale and its network are helping us build Sylmar,” commented Warady.
“We are thrilled to back Michael, Peter, and Sylmar,” said Ross Brendel (Yale College 2011) and a co-founder of Westerly. “They are impressive and have the right professional and operational background to launch a successful entrepreneurial project. We are so enthusiastic that Sylmar is our largest investment to date. Michael and Peter have been thoughtful in their approach and strategy. We are looking forward to seeing them build a wonderful business for a few decades.”
Rich Littlehale (Yale College 2010), Brendel’s co-founder and fellow board member of Sylmar offered, “I am an entrepreneur by background, and Michael and Peter have the personal characteristics that will help them succeed with Sylmar. They are smart, hardworking, and tenacious. This is a team that we are delighted to back for the long-term. We are fortunate to be their partners.”
When asked about his time at Yale, Warady explained, “Yale was great. I loved the community, the culture, the academics, and the vision. Red cohort was full of like-minded people and folks from backgrounds that could not have been any more different than my own. The curriculum helped give me the foundation of skills, and a better understanding of how and where to attack and win in the broader business world, which have prepared me to be an entrepreneur. My time at SOM gave me room and space to develop and grow as a person and begin to chart out my entrepreneurial journey for the decades ahead.”