After a prospective investment passes our quantitative evaluation, we work with the Deal Partner to assess the qualitative components of the opportunity and to establish the credibility of our investment thesis.
We target investments in companies with sustainable competitive advantages that may be the result of unique designs or engineering capabilities and intellecutal property, highly-efficient or unique manufacturing processes, proprietary supply chain capabilities or customer insights, an unrivaled distribution channel, a superior level of service, and/or a resilent brand and reputation with customers. In addition to having a pronounced and sustainable competitive advantage, companies must also demonstrate credible opportunities for growth.
As part of this evaluation we examine the following factors:
Customers, Suppliers and Competition
What is the basis by which customers choose suppliers?
Why do customers choose to transact with the target relative to other alternatives?
How easily can customers substitute a competitve offering?
What is the degree of customer loyalty?
How financially strong are customers and competitors?
Are there opportunities to acquire (or be acquired by) competitors?
Which competitors are most successful and why?
Can cost increases be easily passed along to customers?
What are the size and the growth prospects for the market/industry?
What are the barriers to increasing market share?
What are the marketing, sales and distribution dynamics of the industry?
Can the company raise prices?
What are the capital costs and payback period for expanding capacity?
Is there potential for the company to expand into related markets?
What financial controls are currently in place?
What is performance measured and what are the key metrics?
What is the sustainability and growth potential of profit margins?
What are the drivers of product costs and how thoroughly does management understand these drivers?
At what sales levels will capital improvements be required?
What is the adequacy of current operational layout?
How capable is the CEO?
Is this CEO the right individual to grow the company going forward?
How deep is the management team?
What management resources is the company lacking?
What is the level of management and employee loyalty?
How effectively can we and our deal partners work with the existing or proposed management team?