Programmatic M&A Thesis
Contributor Rob Williams
By Rob Williams
At Fielding.Global, a hybrid investment firm that as well as being a vehicle for responsible investors backing businesses in clean energy, future workplace and regtech continues our successful journey in programmatic M&A. This overview of how we work might offer valuable insights if you're considering establishing a similar fund. Here's a snapshot of our strategy, which might serve as a blueprint for your endeavors.
The Role of Private Equity in M&A
Private equity, which oversees about $1.5 trillion in capital, can play a pivotal role in M&A. Smaller funds within this domain often acquire small companies, nurture them, and then transition them to larger funds. Using a similar model, our Special Purpose Vehicle (SPV) for M&A focuses on funding what we term "beachhead" companies, which are essentially our initial entry points into markets. Our target acquisitions usually fall within the EBITDA range of $1 to $3 million. These strategies were successful in helping the Capita Group, a Business Process Outsourcing giant reach a market cap of £2.4 billion, where I was fortunate to be contribute and share in that success for ten years.
Growth as the Cornerstone
When considering companies for acquisition, potential for swift growth is paramount. The ideal candidate should have the capacity to achieve at least 30% growth to align with our five-year objectives.
Navigating Fragmented Markets
Fragmented markets, teeming with small businesses across sectors like roofing, dentistry, auto services or HVAC, present immense opportunities. In such markets, we acquire and subsequently develop businesses. The strategy here is to consolidate these smaller entities, thereby enhancing our market standing.
Checkpoints for Acquisition
For your M&A strategy, having a clear set of acquisition criteria can be beneficial. We typically look for:
● Businesses in markets devoid of a dominant player.
● Stability in operations, irrespective of ownership changes.
● Proven history of efficient capital utilization.
● Consistent customer growth and retention.
● Clear avenues for growth, especially in system optimization and marketing.
Investment Guidelines
● A minimum EBITDA of £1 Million serves as our benchmark.
● Our usual acquisition price is 3-4 times the EBITDA.
● Depending on specific business attributes, we might consider a higher valuation.
● An end-of-first-year return of 25% is our goal.
Strategizing Execution
Having a robust execution strategy is vital. We plan in 18-month cycles, following our ACE (Analysis, Capital, Execution) methodology. This entails in-depth market research, business assessments, capital estimations, and pinpointing potential funding avenues. An interdisciplinary team, spanning researchers to financial experts, helps in seamlessly realizing these goals, aiming for returns like our target of 3X over five years.
If you are interested in finding out more then please feel free to reach out Rob Williams
Hope you enjoyed this article!
Sebastian H. Amieva