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in the same industry. Following the acquisition of companies, we seek to grow the earnings and cash flow of acquired companies and, in |
turn, grow regular distributions to our common shareholders and to increase common shareholder value over time. We believe we can increase |
the cash flows of our businesses by applying our intellectual capital to improve and grow our businesses. We seek to acquire and manage small businesses. |
We believe that the merger and acquisition market for small businesses is highly fragmented and provides opportunities to purchase businesses |
at attractive prices. We believe we will be able to acquire small businesses for multiples ranging from three to six times EBITDA. We |
also believe, and our manager has historically found, that significant opportunities exist to improve the performance of these businesses |
upon their acquisition. In general, our manager oversees and supports |
the management team of our businesses by, among other thi ● recruiting and retaining managers to operate our businesses by using structured incentive compensation |
programs, including minority equity ownership, tailored to each business; ● regularly monitoring financial and operational performance, instilling consistent financial discipline, |
and supporting management in the development and implementation of information systems; 3 ● assisting the management teams of our businesses in their analysis and pursuit of prudent organic growth |
strategies; ● identifying and working with business management teams to execute on attractive external growth and acquisition |
opportunities; ● identifying and executing operational improvements and integration opportunities that will lead to lower |
operating costs and operational optimization; ● providing the management teams of our businesses the opportunity to leverage our experience and expertise |
to develop and implement business and operational strategies; and ● forming strong subsidiary level boards of directors to supplement management teams in their development |
and implementation of strategic goals and objectives. We also believe that our long-term perspective |
provides us with certain additional advantages, including the ability t ● recruit and develop management teams for our businesses that are familiar with the industries in which |
our businesses operate; ● focus on developing and implementing business and operational strategies to build and sustain shareholder |
value over the long term; ● create sector-specific businesses enabling us to take advantage of vertical and horizontal acquisition |
opportunities within a given sector; ● achieve exposure in certain industries in order to create opportunities for future acquisitions; and ● develop and maintain long-term collaborative relationships with customers and suppliers. We intend to continually increase our intellectual |
capital as we operate our businesses and acquire new businesses and as our manager identifies and recruits qualified operating partners |
and managers for our businesses. Acquisition Strategy Our acquisition strategies involve the acquisition |
of small businesses in various industries that we expect will produce positive and stable earnings and cash flow, as well as achieve attractive |
returns on our invested capital. In this respect, we expect to make acquisitions in industries wherein we believe an acquisition presents |
an attractive opportunity from the perspective of both (i) return on assets or equity and (ii) an easily identifiable path for growing |
the acquired businesses. We believe that attractive opportunities will increasingly present themselves as private sector owners seek to |
monetize their interests in longstanding and privately held businesses and large corporate parents seek to dispose of their “non-core” |
operations. We believe that the greatest opportunities for |
generating consistently positive annual returns and, ultimately, residual returns on capital invested in acquisitions will result from |
targeting capital light businesses operating in niche geographical markets with a clearly identifiable competitive advantage within the |
following industri business services, consumer services, consumer products, consumable industrial products, industrial services, niche |
light manufacturing, distribution, alternative/specialty finance and in select cases, specialty retail. While we believe that the professional |
experience of our management team within the industries identified above will offer the greatest number of acquisition opportunities, |
we will not eschew opportunities if a business enjoys an inarguable moat around its products and services in an industry which our management |
team may have less familiarity. From a financial perspective, we expect to make |
acquisitions of small businesses that are stable, have minimal bad debt, and strong accounts receivable. In addition, we expect to acquire |
companies that have been able to generate positive pro forma cash available for distribution for a minimum of three years prior to acquisition. |
Our previous acquisitions met these acquisition criteria. 4 We benefit from our manager’s ability to |
identify diverse acquisition opportunities in a variety of industries. In addition, we rely upon our management teams’ experience |
and expertise in researching and valuing prospective target businesses, as well as negotiating the ultimate acquisition of such target |
businesses. In particular, because there may be a lack of information available about these target businesses, which may make it more |
difficult to understand or appropriately value such target businesses, our manager wil ● engage in a substantial level of internal and third-party due diligence; ● critically evaluate the management team; ● identify and assess any financial and operational strengths and weaknesses of any target business; ● analyze comparable businesses to assess financial and operational performances relative to industry competitors; ● actively research and evaluate information on the relevant industry; and ● thoroughly negotiate appropriate terms and conditions of any acquisition. The process of acquiring new businesses is time-consuming |
and complex. Our manager has historically taken from 2 to 24 months to perform due diligence on, negotiate and close acquisitions. Although |
we expect our manager to be at various stages of evaluating several transactions at any given time, there may be significant periods of |
time during which it does not recommend any new acquisitions to us. Upon an acquisition of a new business, we rely |
on our manager’s experience and expertise to work efficiently and effectively with the management of the new business to jointly |
develop and execute a business plan. While primarily seek to acquire controlling interests |
in a business, we may also acquire non-control or minority equity positions in businesses where we believe it is consistent with our long-term |
strategy. As discussed in more detail below, we intend to |
raise capital for additional acquisitions primarily through debt financing, primarily at our operating company level, additional equity |
offerings by our company, the sale of all or a part of our businesses or by undertaking a combination of any of the above. Our primary corporate purpose is to own, operate |
and grow our operating businesses. However, in addition to acquiring businesses, we expect to sell businesses that we own from time |
to time. Our decision to sell a business will be based upon financial, operating and other considerations rather than a plan to complete |
a sale of a business within any specific time frame. We may also decide to own and operate some or all of our businesses in perpetuity |
if our board believes that it makes sense to do so. Upon the sale of a business, we may use the resulting proceeds to retire debt or retain |
proceeds for future acquisitions or general corporate purposes. Generally, we do not expect to make special distributions at the time |
of a sale of one of our businesses; instead, we expect that we will seek to gradually increase regular common shareholder distributions |
over time. There are several risks associated with our acquisition |
strategy, including the following risks, which are described more fully in Item 1A “ Risk Factors—Risks Related to Our Business |
and Structure ”: ● we may not be able to successfully fund future acquisitions of new businesses due to the unavailability |
of debt or equity financing on acceptable terms, which could impede the implementation of our acquisition strategy; ● we may experience difficulty as we evaluate, acquire and integrate businesses that we may acquire, which |
could result in drains on our resources, including the attention of our management, and disruptions of our on-going business; ● we face competition for businesses that fit our acquisition strategy and, therefore, we may have to acquire |
targets at sub-optimal prices or, alternatively, forego certain acquisition opportunities; and ● we may change our management and acquisition strategies without the consent of our shareholders, which |
may result in a determination by us to pursue riskier business activities. 5 Strategic Advantages Based on the experience of our manager and its |
ability to identify and negotiate acquisitions, we believe that we are strongly positioned to acquire additional businesses. Our manager |
has strong relationships with business brokers, investment and commercial bankers, accountants, attorneys and other potential sources |
of acquisition opportunities. In negotiating these acquisitions, we believe our manager will be able to successfully navigate complex |
situations surrounding acquisitions, including corporate spin-offs, transitions of family-owned businesses, management buy-outs and reorganizations. We believe that the flexibility, creativity, experience |
and expertise of our manager in structuring transactions provides us with strategic advantages by allowing us to consider non-traditional |
and complex transactions tailored to fit a specific acquisition target. Our manager also has a large network of deal intermediaries |
who expose us to potential acquisitions. Through this network, we have a substantial pipeline of potential acquisition targets. Our manager |
also has a well-established network of contacts, including professional managers, attorneys, accountants and other third-party consultants |
and advisors, who may be available to assist us in the performance of due diligence and the negotiation of acquisitions, as well as the |
management and operation of our businesses once acquired. Valuation and Due Diligence When evaluating businesses or assets for acquisition, |
we perform a rigorous due diligence and financial evaluation process. In doing so, we seek to evaluate the operations of the target business |
as well as the outlook for the industry in which the target business operates. While valuation of a business is, by definition, a subjective |
process, we define valuations under a variety of analyses, includin ● discounted cash flow analyses; ● evaluation of trading values of comparable companies; ● expected value matrices; ● assessment of competitor, supplier and customer environments; and ● examination of recent/precedent transactions. One outcome of this process is an effort to project |
the expected cash flows from the target business as accurately as possible. A further outcome is an understanding of the types and levels |
of risk associated with those projections. While future performance and projections are always uncertain, we believe that our detailed |
due diligence review process allows us to more accurately estimate future cash flows and more effectively evaluate the prospects for operating |
the business in the future. To assist us in identifying material risks and validating key assumptions in our financial and operational |
analysis, in addition to our own analysis, we engage third-party experts to review key risk areas, including legal, tax, regulatory, accounting, |
insurance and environmental. We may also engage technical, operational or industry consultants, as necessary. A further critical component of the evaluation |
of potential target businesses is the assessment of the capability of the existing management team, including recent performance, expertise, |
experience, culture and incentives to perform. Where necessary, and consistent with our management strategy, we actively seek to augment, |
supplement or replace existing members of management who we believe are not likely to execute the business plan for the target business. |
Similarly, we analyze and evaluate the financial and operational information systems of target businesses and, where necessary, we actively |
seek to enhance and improve those existing systems that are deemed to be inadequate or insufficient to support our business plan for the |
target business. Financing We finance acquisitions primarily through additional |
equity and debt financings. We believe that having the ability to finance most, if not all, acquisitions with the general capital resources |
raised by our company, rather than financing relating to the acquisition of individual businesses, provides us with an advantage in acquiring |
attractive businesses by minimizing delay and closing conditions that are often related to acquisition-specific financings. In this respect, |
we believe that, at some point in the future, we may need to pursue additional debt or equity financings, or offer equity in our company |
or target businesses to the sellers of such target businesses, in order to fund acquisitions. 6 Our Competitive Advantages We believe that our manager’s collective |
investment experience and approach to executing our investment strategy provide us with several competitive advantages. These competitive |
advantages, certain of which are discussed below, have enabled our management to generate very attractive risk- adjusted returns for investors |
in their predecessor firms. Robust Network . |
Through their activities with their predecessor firms and their comprehensive marketing capabilities, we believe that the management team |
of our manager has established a “top of mind” position among investment bankers and business brokers targeting small businesses. |
By employing an institutionalized, multi-platform marketing strategy, we believe our manager has established a robust national network |
of personal relationships with intermediaries, seasoned operating executives, entrepreneurs and managers, thereby firmly establishing |
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