Breaking Down 4 Successful Private Equity Firms — Step by Step

Hey guys, so to start out this section of the program, we wanted to give you a few examples of private equity firms in the space right now, what they do. And actually, it's pretty cool. Lincoln's got some good contacts. We're gonna give you 4 examples today of different private equity firms, and Lincoln actually knows people personally at each one of these firms. You had calls with them over this last week.

Yep.

And so he's got a little more.

We're gonna go through their websites, each one of them, but also he's gonna add more insights They would have loved to come on, but compliance reasons, you know, it gets kind of difficult sometimes. So no, in private equity, you don't have to have a ton of money to be successful, okay? 3 out of 4 of these funds operate with less than $1 billion under management, yet they provide incredibly lucrative returns for their investors. This first PE shop is what they refer to them as a lot of the time. They only have like $150 million under management, yet they turn over companies so quickly that they're able to provide very lucrative returns for their investors. So you don't need a lot of money. You have to align your capital with your capacity, which we'll talk about more in a minute. Okay, so Center Valley Fund, located out of Sacramento, CVF Capital Partners. Every fund will just outline on their website what their investment thesis is vaguely, right? Because they just want to attract businesses that are in need of capital. So they'll kind of walk through portfolio investments, their strategies. Most private equity funds will also have a login for their LPs, like a portal that, that you can track their investment and see where we have We haven't discussed that yet on this course, but yeah, there are some great things.

We're actually building some content out to show you guys where you can have investor logins. They can come in, see their investments, the whole 9 yards.

So yeah, Center Valley Fund, let's look at them. CVF invests in small and medium-sized businesses in a range of industries across the western United States. They provide both debt and equity in creative capital structures. Okay, so they just tell you, this is what we do. We invest in all these different types of strategic buyouts, if you will. So a management buyout, where they'll help a management exit or they'll replace the current management. They do growth or expansion capital raises, okay, just raising more money for companies. They'll do recapitalizations. Maybe a company has a lot of equity and if by increasing their debt you can increase their top and bottom lines. They also work with mergers and acquisitions. So this is a little more rare where they do so many different things. A lot of funds will Specialized, but I think it's good to see the different options you have. And then they'll just kind of list their investment criteria, right? They invest in companies with $10 to $100 million in revenue, at least $1 million in cash flow. You'll see this, as I mentioned, they want businesses with at least 5 years of historical financial statements, at least 3, because that just means it's a more mature business, right? It's going to be a less risky investment.

Back to our first video, remember that growth bell curve, right? They're telling you right where they're at on that bell curve. Right in that statement.

That's right. So then they'll walk through their different investment structures. So they, they have investment size of $3 to $15 million. They'll have majority, meaning they lead the investment, or minority equity investments, meaning they're going in with somebody else. So that's kind of like a joint venture, right? They are also a little unique in the fact that they have several different industries that they work in. So the partners here at this fund are just very well connected, so they get a lot of deal flow across their desk. And if it's a good deal, then they take it, right? All right, next up we have Levitt Equity Partners. They invest in healthcare, okay? That's their specialty, that's their vertical. They focus only in the healthcare space, and they don't list it on here, but I was talking with one of the managers at the firm, and their check size is like $5 to $10 million per investment, and they co-invest. They only take the minority stake in the investment, and so what they do is they act as a support to larger private equity funds. So they say, okay, these larger funds that have a lot of money that want to acquire this healthcare business, they say, hey, look, we're going to supply all of this insight to you on the healthcare space, what's going on with the legal system. With, uh, I think they say right here, we have helped our portfolio companies and partner funds analyze and target strategic markets, understand reimbursement changes and trends, and navigate the transition from fee-for-service to value-based care. So I actually Actually, in my undergraduate, I worked on cost shifting in healthcare, on publishing a paper. Healthcare is messy stuff. And so they basically come in and they say, hey, we're gonna do all this messy underground grunt work, the research, the analytics, make sure that you're going— you're investing in a company that, you know, has a future, and let us throw a little money in the deal and then let our investment grow.

That's awesome.

Yeah, it's kind of cool. It's kind of unique. You don't have to be the biggest hitter on the field to make money.

This is kind of like the big shark is going along And they're like the little minnow, you know, that little guy that comes and eats the scraps off of that. They follow the big sharks and eat the scraps. That's a pretty cool investment strategy they have.

Yeah. So, and I think they have like $250 million, you know? But that's what they do. Okay, next up we have Tower Arch Capital. I think they have $700 million. So, they have like very specific investment parameters. And so, I was talking with them and, you know, they just love these mature mom-and-pop businesses that are, you know, maybe retiring and you know, just looking to be done, and they want to take those, build them, and then sell them to another PE firm. But they invest specifically with companies with revenue between $20 and $150 million or EBITDA between $5 and $25 million. They're, they're a little more unique in the fact that they just do recapitalizations, management buyouts, and corporate divestitures. Okay, remember how I said these, you know, these mom-and-pop businesses that are done? They want to seize those assets sell them off. Okay, for those companies they do want to grow, they say, look, we're going to expand your company to new geographies, we're going to develop new distribution channels, maybe we're going to issue new lines of credit because we have a really good credit history. You know, whatever it is, but these funds focus specifically. And again, you know, they've usually got their portfolio investments that you can look at and an LP login. So that's Tower Arch Capital.

Now finally, our 4th group is Partners Group. Walk us through them.

They're actually one of the biggest private equity firms in the world. When you think of large private equity groups, you probably think of Blackstone or KKR, but Partners Group has, I think, $90 billion in assets under management based out of Europe. So in their private equity arm, they have, uh, you know, they've invested $68 billion into private equity, okay? And they've currently— they've got $45 billion in assets under management. So these are big dogs, right? As you see with these larger firms, what kind of happens is they start off small, right? Everyone starts off small. Maybe you specialize in this type of business, and then there's this other market that is complementary to that other business. So then they start doing PE deals in the other one, and then they conflate those, and then they just keep growing and growing. So now—

A good example of that is my, my dad's funds. They do real estate, multifamily real estate. They also figured out they could start a small insurance company, and they would do insurance for all of their own properties. And then they, hey, they got a cable contract and said, hey, we will just own the cable for all of our properties, and also we'll own all the cleaning services. And they started to buy up all the businesses around their assets so that they could have it under one shop.

Yep, that's how people get big, right? So you look at them now, they operate in healthcare, in consumers, in industrials. I think their largest space is their infrastructure, energy and utilities. So they work with, you know, states and governments and a lot of financing and projects there. But really cool company. Partners Group is awesome. Okay, so I've walked you through 4 different private equity firms, right? Some, you know, middle tier, some massive. But just remember, each one of these private equity firms started out by acquiring just one business, okay, and growing it from there. So the process is learn how to acquire and scale one business And then really getting into private equity, you raise a fund, you do it at scale.

It's exactly the model we talk about, is syndicating your first deal. Could be even a small deal, buying that, doing it well, just like you mentioned, and then scaling. A fund, a private equity fund especially, allows you to scale that investment thesis.

Yeah. So now let's kind of take a step back, and then I, I think in our next couple videos we're going to talk more of a small business acquisition and how to look at that, and, and actually the process of how to acquire a business.