Backflow prevention, an investment thesis
December 2024: Backflow prevention might not be the flashiest corner of the economy, but it’s a critical one—protecting water systems, safeguarding public health, and, for private investors, offering a surprisingly lucrative opportunity to consolidate a relatively untouched pocket within the broader plumbing industry. As municipalities tighten regulations and aging infrastructure drives demand for inspections and maintenance, backflow services are becoming a recession-resistant niche with high margins and recurring revenue potential [...].
Investing at inflection points in shitty industries, the story of United Rentals.
September 2024: Many of the companies I discuss frequently here are not just good businesses, but obviously good businesses. Ametek, Asplundh Tree, Cacique Cheese, Constellation Software, Costco, Danaher, Ferrari, Hermés, Moody’s, Moutai, Roper Technologies, Starbucks, Tencent, TransDigm, and Visa are wonderful and you don’t need to be further convinced of that fact, although they are fun to write about. Notwithstanding regulatory or macro pressures that may sullen the outlook at certain points (Chinese regulation in the case of Tencent, the 90s antitrust fiasco and Balmer era in the case of Microsoft, and interchange regulation in the case of Visa) these companies are all fantastic for pretty much the same reasons they were 10 or 20 years ago.
Popular Posts
The case for queso - an overview of the hispanic cheese market
Merchant banking, the perfect canonical business
Why are electric process heating distributors such a great business? One word. Plastics.
August 2024: On the surface, the following scenario is pretty common. A sub-billion dollar industry flies under the radar for decades while a bunch of family-owned businesses chug along and grow into exceptional franchises. Finally a large player is ready to be sold, the asset is shown to hundreds of private equity firms, and for the first time the veil is lifted on what had previously been a relatively well-kept secret among a few industry insiders. Given humans memetic nature, a flurry of PE investment follows [...].
The Asplundhs – how a family tree trimmed its way onto the Forbes List
July 2024: The Asplundh family is one of the most successful, yet least talked about powerhouse families in the country. Today, Asplundh Tree Experts is a $6.5 billion revenue behemoth, but it started from humble beginnings [...].
The case for queso – an overview of the Hispanic cheese market
June 2024: In kitchens and restaurants across the country, dishes featuring Hispanic or Latin American cheeses are becoming more popular due to the ever-growing Hispanic population in the United States. Mexican, Caribbean, and South American-style authentic cheeses have been growing double digits for nearly two decades while the overall cheese category has been flat. Hispanics make up ~20% of the population, but Hispanic-style cheese represents just ~3% of the cheese produced in America [...].
How to write an investment teaser
June 2024: The teaser is the first “filter” through which prospective buyers will pass before moving forward. The teaser should help attract the right potential buyer(s) and screen out the irrelevant ones, making the rest of your sale process simpler and more efficient for everybody. Active strategic buyers typically review more than 500 acquisition opportunities each year and buy approximately 1-2% of them [...].
Components of a sell-side M&A process
May 2024: A sale process lasts 5-7 months typically. This can vary – I've done a deal in 3 months, and some stretch all the way up to 1 year, and some die. Ideally none, but it does happen for a variety of reasons. For example, leverage markets freeze up, there’s a macro-economic slowdown, the business’ financial performance declines significantly in the middle of a process, or various issues get brought to light during diligence (i.e., tax liabilities, legal, or environmental issues) [...].
Securing the deal – How to not look like a douchebag when meeting management teams
May 2024: Arrive armed with extensive research and present a comprehensive data pack that shows you understand not just the company, but also the industry landscape. This demonstrates serious intent and respect for the potential partnership. Come with graphs and slides... We make it abundantly clear that we put 100s of hours into the research and are invested... money is fungible, commitment is not [...].
Underwriting a potential venture investment in Levels Health
May 2024: Levels represents an interesting early-stage investment opportunity. The company is looking to raise $5-10M in a friends and family Series A extension round via an SPV. Previous funding for the company includes an Andreessen Horowitz-led $12M seed round in November 2020, a $38M Series A in April 2022 ($300M post-money valuation), and a $7M Series A extension round in January 2023 [...].
Merchant banking, the perfect canonical business
April 2024: My idea of the perfect business is getting paid a tremendous amount of money for your words. Just your advice. The old-school merchant banks and M&A boutiques like Lazard and Allen & Co. are pretty close to the perfect business. Someone has decided that your wisdom is so worthy that they are going to give you millions (sometimes hundreds of millions) of dollars for it. They require no capital, they are hugely cash flow accretive, and you can generally build equity by investing in the deals that you are advising [...].
What private equity gets wrong
March 2024: The more I get into institutional capital markets, the more I realize it’s one big career-risk, principal-agent problem from bottom to top across LPs and GPs. The problem for my industry is that traditional private equity terms create terrible incentives for buying and operating a company. A private equity firm is being completely rational when it continues to pay higher prices, does increasingly less due diligence, raises larger-and-larger funds, buys bigger companies, makes short term decisions, and bills the heck out of investors and portfolio companies every time they lift a finger [...].