Our strategy is predicated on assembling a portfolio of 8-12 small-cap middle market investments, primarily majority acquisitions, often with a change of senior management. We will develop a unique deal flow by combining the Acquire One Principals’ industry insight and business relationships with recruited management partners and a direct company calling program.
We generally will target to acquire a majority share of companies ranging from $20M through $150M in enterprise value. As well, when appropriate, we will take minority positions in particularly attractive companies. Target companies may be well managed or underperforming with clearly identifiable opportunities to improve performance once Acquire One owns the company. In general, we will be seeking target companies with characteristics that are attractive for small cap private equity:
- Either EBITDA positive at the time of investment, or have the opportunity to achieve positive EBITDA within one year
- Competing in fragmented markets where size is not an insurmountable competitive advantage
- Participating in markets with historical and projected growth rates of at least high single digits and generally no greater than mid-twenties
- Stable P&L, balance sheet and capital expenditure model as business scales
- Low intrinsic capital intensity
- Technology savvy, but success not dependent upon technology creation, IP invention, or new market creation
- Growth potential through acquisitions
We expect that the experience and diversity of our principals will enable a unique and highly effective deal flow network. We will identify opportunities where owner operators are seeking to exit the business and “under-managed” opportunities where new effective management can make an immediate difference. In either case, we will bring in a management partner to serve as CEO to create value for Acquire One and its Limited Partners.
Our investments will be headquartered in North America. The markets they serve may be both domestic and international, and the companies may include international operations where appropriate and advantageous. While our scope will be nation-wide, we will place particular emphasis on investing in states and municipalities where synergies are created with our investment strategy.
Our target markets will encompass services and manufacturing industries that build on the experience and relationships of our three founding partners, and that share the characteristics described above for target companies. Areas of emphasis are currently expected to include the following:
Healthcare has grown at two times the rate of inflation, with total spending $2.4 trillion, 17% of GDP. Aging Baby Boomers project to grow by 36 % between 2010 and 2020, compared with a growth of 9% for the general population. These factors along with the discontinuity caused by the current political climate determined to overhaul the health care system and reduce costs will offer significant acquisition growth opportunities:
- National healthcare legislation and federal actions to contain costs will create new winners and losers in the industry.
- Significant industry changes will cause larger corporations to divest non-core, health care related businesses.
- Healthcare services are generally “local” businesses, creating niche markets that are highly fragmented and primed for acquisitions.
- Favorable demographics over the next decade will create considerable growth opportunities in certain niche markets serving geriatric consumers.
Investment opportunities could include niches such as ambulatory surgical centers, health specialty services, electronic medical record processing, diagnostic services, and behavioral science services.
While there has been a significant migrations of North American manufacturing jobs to low wage developing countries, there remains a robust and vital specialty manufacturing industry. This is particularly true of manufacturers with low volume and high engineering content, and with high volume, high design content but low labor content. Defense, environmental, and construction are sample niche markets with these characteristics. Certain niche automotive component manufacturers share these characteristics and can be expected to prosper in a reconfigured US automotive industry. In addition, opportunities for profitable growth exist for minority owned companies with technological competence and scale.
Services, especially federal, state and local government:
Global competitive and cost pressures have forced employers to re-think their business models and core competencies. As a result, third party staffing and business process outsourcing are growing at rapid rates. Importantly, pressures to reduce legacy cost and the size of government, coupled with a workforce that is rapidly approaching retirement, are forcing governmental agencies at all levels to seek highly skilled professionals from third party vendors in the areas such as engineering, project management, technology staffing, and transaction processing. As in manufacturing, there is political pressure to seek these services where possible from third party minority vendors with size and scale.
Central to our strategy is to leverage the knowledge and relationships of our Principals and a large cadre of successful CEO’s and entrepreneurs whose careers have been built in our target industry markets. Our approach to maintaining and enhancing this capability consist of the following components:
- Acquire One Principals. Our Principals include a veteran private equity manager with operating and consulting experience, and two former CEO’s with turn-around management experience and deep community relationships. Collectively we have both investment and operational experience in each of our targeted industry markets.
- Management Partners. We will continuously recruit successful CEO’s, entrepreneurs and leaders who are at a point in their careers where they are interested in working with Acquire One to purchase and build a platform company. These individuals will be introduced to Acquire One in various ways, including through the Principals’ personal relationships, by boutique executive search firms cultivated by Acquire One, and by directly reaching out to identified prospects. Where appropriate, we will make use of public and private recruitment data bases. We also expect to use selected third-parties to help screen and evaluate Management Partner candidates.
- Investment Advisors. We are developing a group of 20 – 30 successful current and former CEO’s, entrepreneurs, and wealthy investors to help us find Management Partners and investment opportunities, assist with due diligence, invest along side of us, and sit on boards of our companies. Collectively they have a wealth of knowledge and experience in each of our targeted markets and niches. They will be compensated for their active involvement in these activities.
Investment Origination Process
Acquire One expects to source its investment opportunities from an unconventional and proprietary deal flow that combines the judgment and contacts of its principals with an explicit process to continually develop and evaluate investment candidates. We expect investment candidates to flow from five primary sources.
- Acquire One strategic analysis. We will conduct periodic formal strategic planning sessions with Principals, Investment Advisors, and Management Partners, augmented as appropriate with academic and specialty consultant input to identify attractive industries and markets.
- Principals. Acquire One’s Principals have developed and will cultivate deep business relationships that have and will continue to produce proprietary investment opportunities.
- Management Partners. We will develop and continually update a cadre of current and former CEOs and entrepreneurial business leaders qualified and motivated to find and lead Acquire One investments. Every contact with a potential Management Partner will provide the opportunity to explore that executive’s knowledge of market segments that are currently attractive for private equity, and to develop lists of possible investment targets. Our Management Partners will be highly motivated to find attractive investments to buy and build with Fund capital. In many cases, a Management Partner’s market insights will lead to a targeted direct company calling program.
- Investment Advisors. Our Investment Advisors have developed deep knowledge in their industries over their long careers, and have demonstrated interest in participating in the deal origination, due diligence, and portfolio company oversight process. They will be specifically compensated for providing investment origination assistance, will be able to invest capital directly in the deals in which they have participated, and will be invited to invest in Acquire One’s side-by-side fund under advantageous terms.
- Traditional deal sources. Insights from the four sources described above will allow Acquire One to effectively screen and prioritize the traditional deal flow that we will be receiving from boutique investment bankers, brokers, lawyers and accountants, and fundless sponsor private equity partnerships.
Once an investment has been made, we can create portfolio company value from six different sources. The mix and relative importance of these sources will vary depending upon each portfolio company’s unique circumstances. We plan to be explicit in driving these sources for each investment:
- Core business growth. We will leverage our integrated strategic planning process to plan, organize, and prepare for accelerated organic top-line growth within portfolio companies. A special emphasis is placed on marketing and realizing customer satisfaction.
- Operational improvement. In most cases we will expect our Management Partner CEO to increase the operating profitability of his/her portfolio company. Key to our approach will be implementation of a detailed quantitative measurement system for operating parameters and a continually program to improve measured parameters. Examples would include proven change management systems as well as quality improvement systems and Six Sigma.
- Add-on acquisitions: We will strategically identify and pursue acquisitions in targeted niche markets that add value or increase our competitive advantage. This would include acquisitions that improve costs, speed to market, innovation, and cross selling of customers and capabilities.
- Balance Sheet Leverage. When appropriate, we will use moderate balance sheet leverage to increase equity returns. The initial acquisition of a “buy and build” portfolio investment often will not include leverage in order to allow us to confirm our investment thesis in an environment without bank covenants.
- Valuation Multiple Increase. We expect to exit our portfolio investments at a higher multiple of EBITDA than our original investment. This has been our investment experience in the past, and results both from pricing discipline at the time of original investment and the value that buyers place on the size, growth rate, operational improvements, and acquisition synergies accomplished during our ownership.
- Exit Timing. Our experience has been that investment exit timing has a significant impact on deal returns. Moreover, the best overall portfolio value has generally been obtained if we exit our investments “a little too soon,” when the buyer can clearly see continued upside. We will endeavor to follow this philosophy at Acquire One.
Portfolio Company Oversight
Acquire One will always have one or more board seats on portfolio companies. In addition, we will take the lead in recruiting experienced and effective boards of directors for each of our companies. Boards will generally meet monthly, at least early on in our involvement, and these meetings will form the primary oversight vehicle. In additions, we will implement three specific programs at each of our companies:
- Strategic Planning Process. We will collaborate annually with our CEO Management Partners to establish and or enhance plans for profitable growth. This is achieved through a fact enabled process of reviewing a company’s previous performance while reaching consensus on mission, vision, strategy, goals, and objectives.
- Measurement & Process Enhancement Model. We will ensure that our CEO Management Partners develop explicit detailed company performance measures and the metrics to assess effectiveness. We will instill a culture to continually improve these metrics.
- Implementation & Change Model. We will regularly collaborate with our CEO Management Partners to identify and remove a company’s cultural barriers to change. Our goal is to reach consensus on systematic approaches for creating change while maximizing productivity.
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