In order for the Partnership to ensure that investment disciplines exist and that potential portfolio companies are strong, diverse, and profitable businesses with competitive advantages, the General Partner intends to consider investment opportunities where the target business exhibits certain fundamental attributes that the Principals have found to be the foundations of successful investments. Those attributes include:
Talent: High quality talent, from top to bottom, is the most critical factor that determines the success or failure of a lower middle market company. If management or talent is lacking, the principals will need to assess the timeframe and cost required to make appropriate changes and build that into the model of returns.
Profitability: Profitability is a historical reflection of the strength of a company’s management, product lines, and distribution. Since the Partnership is a financial investor, it is critical that it align itself with successful companies, rather than with startups, turn-arounds, or commodity/competitive businesses. Therefore, a target business will have gross margins in its industry which reflect a business with a defensible position and strong value proposition.
Size: A company that is worth investing in should have some amount of critical mass in order to be successful and to have the ability to fund and absorb additional resources. Therefore, any investment candidate should typically have sufficient annual revenue and adjusted operating profit to provide such critical mass. In most cases we would look for operating profit to be in the $3MM - $10MM range.
Market Share Leader: A company should be a leader within its market, and therefore, should own a notable amount of market share. Market share illustrates that a company’s products or services are viewed in the marketplace as a product or service of choice (relative to its value) and that the company possesses brand name recognition, strong distribution, and other intangible assets that are not listed on the balance sheet, but are evident in the earnings of a business.
Low Concentration: Customer and vendor diversification limits the influence that any one company has on a business. In today’s world of mergers, acquisitions, supplier preference agreements, and bankruptcies, companies must be prudent and protect against customer and vendor concentration that can have severe or grave consequences on a company should a customer or vendor change suppliers or go out of business.
Targeted Sectors: Business & Financial services, niche manufacturing, and renewable technology, with a geographic preference for the Southeast United States and Texas.