Investment Criteria
What We Are Looking For – Business Value Add
Industrial Renaissance is looking for companies that need more than just money. We are looking for business investments that require a management partner and business strategy where value can be created. To consider a company as a business investment candidate, we and management must be able to add value to the business going forward.
Company Criteria
If your company is any of the following then we are interested:
- Corporate divestiture of subsidiary / division – public or private company
- The “Seller” is also the current “CEO” and must be replaced post-transaction
- Underperforming companies
- Turnarounds and restructurings
- Companies possessing a disruptive technology or business model
- Companies in highly fragmented industries
- Additional management assistance and expertise are required
- Family business with no successor to take over the business
We like underperforming companies. These are companies with good product positioning that are any or all of the following:
- Absence of a management leader
- Liquidity-constrained balance sheet
- Fractured relationship with Lender(s)
- Little or no earnings
- High cost and overhead structure
- High inventory levels / low inventory turns
- Long manufacturing lead-times, long customer order lead-times
- Need operational improvements
- Flat, in decline, or slow revenue growth
- Small percentage of a large market
- Product quality offers potential to capture market share
- Transaction will not be obvious. Many reasons not to do the deal
- Little reliance on historical earnings for transaction pricing. Importance of “NEBIT” (next year’s EBIT)
- Belief that better management can capitalize on the product position and generate significant annual revenue gains even in industries that are growing at modest rates
- Ideal underperforming targets/candidates are in industries which have opportunities for consolidation
We like companies with a disruptive technology or business model. These are companies with a breakthrough invention or innovation that has the potential to create an early market opportunity and displace others within the industry and lead to explosive growth. We have worked with companies with disruptive technologies, and have helped many small companies accelerate through their growth curves. Velocity is key to success. We can leverage our experience to help these smaller companies create velocity in the execution of their business plans before the window of opportunity closes.
Industries of Interest
General industries of interest include:
- Niche manufacturing
- Industrial manufacturing
- Nanomaterial / nanotechnology
- Technology
- Service businesses
We are not interested in:
- Apparel
- Retail
Revenues and Earnings
The first question we are often asked by investment bankers and business brokers is “what is your EBITDA criteria (min/max)”, and “what is your equity investment size criteria (min/max)”, so they know which companies we’re interested in. The answer is we don’t care. That only matters if you’re a private equity fund and your behavior is dictated by how much you have to invest per transaction. We prefer to start with the company and opportunity first, and then learn about its characteristics second. Because we are not investing from a private equity fund that dictates our investment size and behavior, we are opportunistic investors and are interested in companies across a wide range of revenue and earnings spectrums:
Revenues:
- $2 million to $25 million in revenues. Generally these businesses are too small and are often overlooked by large private equity funds. We like them. Many are in great niches / industries or with great technologies and capabilities, and need help to get to the next level. We will often acquire / invest in them independently and work very closely with them; and
- $25 million to $200+ million in revenues. While considered “larger” when we started acquiring companies over twenty years ago, in today’s private equity fund environment they are also considered small companies and are often overlooked by large private equity funds. We have successfully acquired and integrated several companies in this size range and will typically bring in our high net worth investors and family offices to participate with us as the transactions grow in size.
Earnings/EBITDA:
Earnings/EBITDA levels are not important at the onset. We generally prefer companies with higher gross margins, but with lower/little EBITDA, and low inventory turns. We are seasoned buyers of underperforming companies and realize that we often cannot put too much reliance on historical earnings for transaction pricing. Instead we many times have to rely more on “NEBIT” (next year’s EBIT).
Geographical Preference
We have successfully acquired companies in the United States of America as well as non-U.S. countries and continue to pursue a broad geographical strategy.
In North America. we are particularly interested in the corridor running from the West North Central U.S. down through Texas (North Dakota, South Dakota, Minnesota, Iowa, Nebraska, Oklahoma, Texas), the Northeast, Southeast, Midwest, Southwest, and Rocky Mountain States, and all of Canada, Outside the U.S. we are particularly interested in Australia. If it is a great opportunity, then we will consider it regardless of geography.
Intermediaries
We work with investment banks, investment bankers, business brokers, attorneys, accountants, business people, and individuals as a source of deal flow. Our best source of deal flow is word of mouth from those we’ve worked with before.
