VALUE, RISK AND STRUCTURING

On acquisition we look for complexity. This allows us to acquire fundamentally good businesses at attractive prices, and we therefore believe this is the opposite of risk. However we look for the type of complex issues – in processes, in financials, in transaction structures, in ownership models – which put off others, private equity firms in particular. We do not take generic all-encompassing business risk, but we do look for issues which are specific, identifiable and fixable, and in all of our transactions we have found these have deterred competition during the process and enabled us to structure and attractive transaction and overall therefore reduce risk.
Once we have taken on the responsibility for stewardship of our companies, Sullivan Street takes a patient approach to investment, reinforcing why our entry price has to stand up to long term horizons, which look through cyclical effects. Over this horizon we have consistently taken a scenario-based approach to valuation, therefore highly valuing growth levers within potential investment companies that can deliver upside should economic headwinds disrupt the company’s operations. This hopefully ensures going forward we can always, at a minimum, seek a capital preservation base case and company stability.
Our perception of risk is fundamentally affected by how close we are to our businesses. Unlike traditional private equity, we have the confidence to believe we will see issues early in their development and therefore on investment can live with market and operational risks which may be a permanent fact of life for many businesses, but which are offputting for PE founders receiving their information solely through board packs. We also believe we have the ability to help out when companies need all resources available to manage those risks and headwinds. Like all investors we are cognizant of global and local economic factors, commercial and market drivers, but in this again our willingness to take conviction views can set us apart.
The partners at Sullivan Street have extensive experience in capital structuring and have implemented complex financial structures of all sizes. Our approach is to establish the appropriate capital structure to enable companies to deliver growth in uncertain climates. Critical for us in structuring leverage in particular is our role as stewards to the companies with responsibility for all stakeholders – while every eventuality cannot be planned for, at the outset we believe that no equity reward scenario justifies excessive risk to the other multiple stakeholders dependent on a business. We avoid simplistic financings in favour of structures tailored to suit all parties’ appetite for risk in a company, allowing us to legislate as best possible for future capital investment, management, creditors, customers and employees. Our use of personal capital allows flexible capital structures and a greater alignment with management teams, as well as a genuine sense of ownership and emotional investment in every business.