Special situations / FIG / Balance sheet (ROIC not EBITDA) investing - what does this mean?
What does this even mean? I realize there’s probably content on this elsewhere but not sure I’m looking at the right stuff. I had a recruiter ask about special situations / FIG / balance sheet investing more focused on ROIC than EBITDA. What does that mean?
I do middle market and large cap growth technology investing with low leverage from a consulting background and I focus like 95% on P&L and 5% between cash flow and BS so the words the recruiter said were basically gibberish to me. Can anyone recommend some reading?
Follow up / bonus points question would be: how are the analyses different? What models do you run? Is the diligence process different and if so, how? Check sizes different all else equal? Etc.
Is this WP?
Sounds like insurance related investing. Ie; you are trying to optimize your return of equity capital to outpace your required payments to policy holders, etc. Most of the multi-asset megafunds (ie; likes of BX, KKR, Apollo, Ares, Carlyle, Brookfield, etc.) have groups that focus on this in some sort of way. Most notable transaction in the space is the Athene / Apollo transaction which has quite a bit of info written about it.
See attached for some additional background: https://www.mckinsey.com/industries/private-equity-and-principal-invest…;
Thanks. This was a good nudge in the right direction.
I think ROIC investing would be about looking at the company's net income (or NOPAT) and dividend paying ability. This is common for some entities that are interested in cashflow generation vs maximizing equity value (endowments, banks, insurance companies, etc.)
In a normal PE deal, you lever the business and use the cashflow to pay down debt and your target is to maximize the value of your equity at exit so your IRR.
In a "ROIC deal", your preference is for the highest net income and highest dividend payment, so you look at ROIC and Dividend Yield on your original investment. Leverage would increase your ROIC but would lower your dividend yield, so you try to strike the right balance between the two.
Modelling is the same, you just look at metrics other than IRR
Illum amet repellat vero suscipit doloribus perspiciatis sunt minima. Ad magnam repellat sit nihil magnam. Dolor aut eum error voluptas.
Rerum fugit voluptatem et quam sed nam. Quibusdam qui reprehenderit vitae aut eos doloremque. Ipsam quia fugiat hic dolores nulla et necessitatibus. Ipsum vel unde et ipsum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...