On acquisition we look for complexity. This allows us to acquire fundamentally good businesses at attractive prices, which 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. 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 attractive transactions and therefore reduce risk.
Once we have taken on the responsibility of stewardship of our companies, Sullivan Street takes a patient approach to investment, reinforcing why our entry price must stand up to long term horizons, which look through cyclical effects. Over this horizon we have consistently taken a scenario-based approach to valuation, 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 off putting for PE founders receiving their information solely through board packs. We believe we have the ability to help when companies need resources to manage those risks and headwinds. Like all investors we are cognisant 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 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 stakeholder’s 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.