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 look for adjusted EBITDA to be in the $1MM to $55MM range.
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.
Osceola Capital Holdings III
Capitalization / Investment Size
- $1-5M EBITDA target
- $5-15M revenue
- $20M investment size
- Strong fundamentals as potential market leader, multiple arbitrage opportunities
- Low concentration/customer and vendor diversification
- High cash flow
- Business services (financial & healthcare)
- Light/niche manufacturing (renewable technologies)
- Emphasis on highly fragmented industries and rollup opportunities
- Southeast-based businesses
Osceola Fund III represents the continuation of an investment strategy that has been successfully employed by its principals over several years and in a number of structures.
The Partnership will seek to make individual investments of up to $20 million into lower middle market businesses, with a particular emphasis on business and financial services, as well as niche manufacturing and renewable technology.
While the primary strategy will be to take a controlling interest in the businesses that the Partnership invests in, it will also look to make some limited opportunistic minority investments alongside trusted partners.
In either case, Osceola Fund III will be focused exclusively on investing in businesses that have exhibited the capacity to generate strong cash flow across the entire life of the investment.