According to the American Investment Council, the nation’s overall volume of private equity (PE) investment has doubled in the past ten years  

And the deal volume in the National Capital region reflects this nationwide trend, with private equity firms continuing to execute a significant number of acquisitions in the region and with many firms considering whether a private equity buyer is right for them. 

To help its members get a better understanding of what these potential investors look for when they are identifying prospective acquisition targets, ACG National Capital invited a panel of experienced, active private equity investors to its July monthly meeting to discuss what key factors they look for in an investment opportunity. 

The discussion, which was moderated by Andy Chassin, Managing Director of Regional Investment Banking at Bank of America Merril Lynch, featured a panel of private equity experts, including:

  • Ollen Douglass, Managing Director at Motley Fool Ventures
  • Suma Kulkarni, Partner at ACON Investments
  • Ben Ramundo, Vice President at Arlington Capital Partners

During their discussion, these private equity investors shared four factors that they consider when deciding whether or not to move ahead with a transaction.

Personality Fit

A common criterion that the panelists shared was that they need to see if there is a personality fit, and determine an executive team’s leadership ability, which includes their emotional intelligence and their ability to form a friendly working relationship.

According to Mr. Douglass, there are two things that Motley Fool Ventures uses to help identify if there is a good personality fit.  “The…assessment at The Motley Fool starts when you get to [building] security downstairs,” he shared, “…every day, I walk past her, and I say, ‘hey, we had some guests come in today. What did you think of them?’ If you aren’t nice to people who you’re not asking something from, then…we’re just done.”

The same thing goes for what Mr. Douglass called “the phone call test.” “The phone rings, I see the caller ID, and [I ask myself] ‘am I excited to pick up the phone or am I cringing to pick up the phone?’ And if you’re cringing, let’s not do the deal.”

Should these “yellow flags” not deal breakers, Ms. Kulkarni advised that they can inform private equity investors by, “help[ing them] figure out how to best manage or provide resources to work with [the] person.”

Criticality and Differentiation of Solutions

When Mr. Raimundo and Arlington Capital Partners look at a company, one of their principal decision factors is how indispensable the company’s solutions or services are, and  how unique their offerings are. Mr. Raimundo than share that, while an offering is often weighed based on its unique intellectual property holdings, his company also defines differentiation by geographic reach, location or specialized skillsets or tradecrafts.

Recession Resilience

Ms. Kulkarni added that it is also important that “the businesses we do invest in have levers to pull if there was to be a correction,” and whereas “recession resilience has always been something we’ve always focused on,” they’re even more focused on recession resilience because of…where we are in the cycle.”

As an example, she shared a recent ACON investment in a Hispanic-focused food retailer. “No matter where in the cycle we are, people need to eat…and more than that, looking at demographic trends…this was not a sector that could easily be picked off,” by larger competitors.

Synergy with Fund’s Other Resources

According to Mr. Douglass, “When we invest, we come in with the idea of developing a company, so what is perfect is when a company is strong where we’re not strong and weak in areas where we are strong.”

In order to substantiate the point, he provided an example of how one of his investments was able to make use of The Motley Fool’s robust digital advertising presence to boost their advertising and marketing profile beyond what they had before, putting them in front of thousands of The Motley Fool’s podcast listeners and making use of their other digital properties. 

To continue to learn more best practices, learn more and register for ACG National Capital’s next event, “NextGen – Feedback: How to Give, Receive, Process and React.

July 2019 Monthly Meeting