When you're looking at companies and you distill all the information to form an investment thesis, what frame work or organization do you use?
If a principal asked you and you had to verbally give an investment thesis, how would you start, what would you say, etc?
What kinds of things do you highlight? Thoughts you add?
Thanks for the insight guys. This is also relevant for in interviews when they ask you about your deal and ask you to give an "investment thesis" on why the sellside or buyside transaction happened.
What is an investment thesis in a PE context - confused (Originally Posted: 11/04/2014)
Can someone help me. I am a bit confused. I am trying to understand exactly what an investment thesis is for a new investment opportunity in an PE context. Is it the attractions for the investment or is it the same as an investment hypothesis? Is it one long sentece or is a lot of bullet points like: 1: strong market position, 2: scalable business model, 3: visible cash flows and strong cash flow generation, 4: good organic growth opportunities ?
Would be keen on getting peoples views.
Some 3rd year associate you are.
Agreed. As useful as my left foot.
First principles - a PE firm wants to make returns for its LPs and fees and carry for its partners. But you don't want to talk up the management fees part of a deal rationale because you're presenting to an IC of LPs who aren't big fans of doing deals just to pay you fees.
How do you make returns? Through long term capital gains on sales and recaps and dividends out of the business, more so the former.
So investment thesis comes down to the key reasons you think:
(i) the business will grow in value eg it's got a defensible market position supported by sustainable capital advantages (eg better management, low cost producer, highly differentiated product etc), is well positioned for growth (eg in a growth market), deal is structured to incentivise management to grow the business (eg management sweet and sweat equity)
and
(ii) why the deal is structured so you can harvest and realise that value eg strong potential for dividend recap as banks like this sort of credit and EBITDA growth will support deleverage to a level that will support a refi and recap dividend, strong interest in this sector supports sale or IPO in your realisation timetable etc
Investment thesis: structure and content (Originally Posted: 11/27/2017)
Hello,
for some time now I have been looking for examples or guidlines for a good investment thesis for corporate M&A or PE deals.
So far, I have only found sources regarding HF investment thesis, for example (can't post actual links cause I'm new):
A write up of WSO member "Simple As".
A "mebfaber" source (search Google).
Do you know of any other sources and/or sources that are more geared towards corporate M&A / PE deals?
Thanks.
Hi zentiger, check out these resources:
More suggestions...
Hope that helps.
How to discuss your investment thesis to PE investors over the phone (Originally Posted: 04/09/2014)
One thing I hate doing is discussing investments over the phone -- can someone help me by laying out the points I should cover during my call with PE investors on why I think they should invest in a company? That would be really helpful. Thank you.
I have somewhat of an idea -- like discussing my model assumptions, growth opps, risks, etc. But I feel like there should be more I need to tell them to win them over.
What is this related to? Are you an investment banker?
No I am not. I am interviewing with a PE firm. They gave me a IM and I constructed a model and an investment thesis. Now, they are having a follow-up call with me (it will include a couple PE professionals). They will likely challenge my assumptions, theory, thesis, etc. It would really help if someone can walk me through what they would be expecting and what I should touch on during my call.
Also, what if they ask me how I came up with an entry multiple? Honestly, I had no private company comps or any industry multiples to base my entry multiple off of, I kind of just made it up since I thought the company was valuable at that multiple.
What type of company is it? How large is it (Revenue, EBITDA)? If you can provide those and it falls into one of the industries I cover, I can give you a pretty good idea of what the multiple would be and what they'll likely ask you. I specialize in evaluating manufacturing, distribution, and business services companies in the lower middle market - so if it fits I would be happy to help you out.
Thanks Justalurker -- this particular company develops and produces engineered, expanded thin ductile foils and polymeric materials. Sales of 17-20M with EBITDA (according to IM) 5-7M, but in my model, I am taking a 35% margin and leaving it flat across 5 years to be conservative.
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