The following are key lessons from this session:
- Making use of multiples arbitrage, buying individual companies at lower multiple and consolidating them with a ‘group effect’ into higher multiples
- Synergies that come with it
- Tried to incorporate Buffet’s slow compounding over a long period of time
- Small amounts of capital can compound at higher rates of return, will slow down with larger amounts of capital
- Sameer keeps the management in place, strong leadership that stays motivated
- Preparing for acquisition
- Companies that are on the operating table
- Chilango
- Had a few bad leases, weren’t able to keep up with their interest payments when the pandemic hit
- Bought company cheap, great turnaround story, backed CEO Richard Frank
- Competitive advantage
- Size and increasing threshold every year
- Most important criteria is it the right price?
- Need margin of safety, below intrinsic valuation (big consideration)
- Working with advisors and team
- Strong set of advisors, legal and financial, speed is of importance, RDCP is the quickest (decisions can be made under 1 day)
- Term sheets and NBOs offered quickly
- Sell-side advisors understand that in a positive way
- Make the process as pain-free as possible for the sellers
- Average time is 3 months from open to close for transaction, so making sure things don’t drag on
- Working with lenders, require transaction documents to completion
- Avoiding auctions and competitive situations
- Intelling is an example, tech-enabled customer management service
- Was a competitive process, RDCP and 5 PE firms
- RDCP didn’t win that with the highest price, it was the balance sheet capital and skin in the game aspect, not deploying capital to generate fees
- RDCP transaction, each one is meaningful because it’s own capital
- Didn’t talk about exit, Sameer doesn’t believe 5 years is very long, gives management teams reassurance, can compete with classic PE buyers
- Permanent capital
- Biggest mistakes that investors make is the need to deploy the capital, the promise to deploy in e.g. 24 months, can overpay and overborrow to justify returns and that’s where mistakes typically occur
- What has changed over the couple of years?
- For some sectors, no change, either traded unimpacted or have overtraded
- Then sectors like hospitality, retail and hotels
- Hospitality is a good example
- A lot of panic sellers, Chilango’s founders had an option to raise capital or give up
- Could negotiate good prices, businesses that needed sound leadership and stability, Chilango has gone from 9 sites to 16 sites (in less than 1 year). Were sound about managing bottom line and costs, utilizing technology and dark kitchens.
- Companies need to use way more technology than they ever had to
- Workplace habits and fast-food sector has been fast-forwarded a good 10 years
- Ultimately a relationship game, good PR noise in acquisitions, maintaining good relationships with advisors
- UK
- UK is a bit of a contrarian bet, S&P vs FTSE shows that historically there are undervalued opportunities in the UK but people are nervous due to Brexit
- Some businesses such as Intelling have international exposure, clients are predominantly UK