INTRODUCTION
We invest $4 - $25 million of equity
per transaction in contrarian leveraged buyouts ("LBO's").
Often, the companies in which we invest are well-managed,
highly profitable businesses, but they are underappreciated because they are:
- in out-of-favor industries (e.g., secondary lead
smelting, textiles, contraception),
- difficult to finance (e.g., have highly irregular
sales, have few tangible assets, have environmental or other litigation
concerns),
- missing a crucial member of senior management,
- discontinued operations of major corporations, and/or
- tainted because they were in "busted
auctions."
We add value primarily in the
following two ways:
- by giving management teams the resources (e.g., money,
people) necessary to grow their businesses, and
- by changing people's perceptions of the portfolio
companies (i.e., making our businesses appealing to mainstream
investors).
We have the ability to "bridge"
transactions, so we can close an LBO quickly and discreetly. Although we are
usually not involved in the day-to-day operations of the LBO's,
we do sit on the boards of directors and are actively involved in strategic
planning and other functions. Our primary goal is long-term appreciation of
shareholders' capital, and
we have never initiated the sale of a portfolio company. Nevertheless, for the
transactions on which we have realized gains, the blended internal rate of
return to equity investors,
net of all fees, exceeds 75%.