Private Equity, Small Business Acquisition, Search Funds, ETA; Combat & Large Cap PE Veteran Co-Founder || Managing Partner - The Brydon Group
May 28, 2022 • 15 tweets • 4 min read
1. Investors quickly learn to look for businesses with high Returns on Invested Capital (ROIC)
Despite knowing that for 20+ yrs, I'm always shocked at how much small differences in ROIC impact the value of a business
Curious how to value a high ROIC business? 2. Here are three businesses, each with the same:
-$20m in (Forward) Earnings
-5% Long-Term Growth Rate
-8% WACC / Cost of Capital
The only difference? Their Returns on Invested Capital (ROICs)
May 27, 2022 • 5 tweets • 2 min read
One of my highlights from @CapitalCamp 2022 was hearing about “Ecosystem Control” as way to find great businesses from @realdennishong
“Ecosystem control” = how much does a company create “lock-in” with customers, suppliers, employees etc.
3 Examples:
1.Aggregators – supply / demand aggregators & marketplaces: Craigslist is classic example
Incredibly durable, asset-light, sticky models; aggregate supply and demand in one place & enable value-add transactions
Jun 1, 2021 • 19 tweets • 3 min read
1/ Earnouts can be one of the most powerful tools you use as a Buyer to bridge value & align incentives
But Sellers typically loathe them and poorly designed earnouts can destroy the Buyer-Seller relationship
How do you effectively use earnouts in SMB acquisitions?
2/ First, what is an earnout?
It’s a form of "contingent consideration" - additional purchase price paid by Buyer to Seller post-acquisition if a certain pre-agreed upon target or metric is hit
May 18, 2021 • 16 tweets • 3 min read
1/ The single most common mistake we see in small business acquisition?
CUSTOMER CONCENTRATION
If one customer accounts for >25% of revenue. Just. Don't. Do. It.
Why?
2/ i. Largest Customer Leaves
And crushes the business financially - the most obvious downside: 30% of your revenue can go up in smoke overnight.
But... this will have an even larger impact on EBITDA & bottom line because of fixed-cost leverage / absorption