Jag tycker det verkar hända grejer på privatekonomifronten nu dock rent generellt. Man hör mer och mer att ansvar och sparande dyker upp i samma mening. Det kanske dock är så att de redan frälsta frälses ännu mer bara?
Det verkar som att fler och fler får upp ögonen för ekonomi och börja ta ansvar för sitt sparande, fler verkar i alla fall intressera sig. Tyvärr så polariseras bilden nog och de som alltid spenderat mycket verkar kunna spendera ännu mer med hjälp av bl.a. krediter medan de som varit sparsamma har fått bättre verktyg för det med hjälp av nätmäkleriet och billigare kurtage.
Vägen är lång och snårig men den leder visst någon vart!
Investment Decision
SvaraRaderaDecision to invest x amount at enterprise value of xx with a view to drive valuation to xx and attractive valuation providing a margin of safety
Investment Thesis
• Attractive competitive position on attractive market, can capitalize on market growth opportunities
• Great LBO candidate, recurring revenue/product offering/platform for M&A
• Multiple value creation levers, such as x and y
Market Attractions
How large is the market?
Sources of market growth and how will these evolve?
• Volume
o Drivers of demand
o Cyclicality and stage in cycle
• Price
o Competition
Market dynamics
• Product essential to customers?
• Fragmented?
• Customer base?
• Network effects?
• Substitutes?
Competitive Positioning
Value proposition? How essential to customers?
Who are the competitors?
• Market shares? Which # are we in the market we operate in?
Sustainable Competitive Advantage?/Barriers to entry
• Demand side
o Customer captivity
Brand/product quality
Importance of product
Switching costs
Network effects
• Supply side
o Patents
o Access to resources
• Economies of scale
o Lower cost structure/average cost per unit declines as a firm produces more
Company Attractions
• How have they been growing?
o Market growth
o Grown market share?
o M&A
• Cost structure? Fixed vs variable? Trends
• Free Cash Flow profile?
o Investments needed/Growth/Maintenance Capex and NWC
• Examples of attractions
o Customer base/stickiness
o M&A Platform?
o Recurring revenue?
o Management
Value Creation Plan
• Three to five actionable items
o Buy player x for this reason
o Low hanging fruit in x, can get this type of value creation
o Expand into this region/adjacent market
o Focus into expanding into markets where we can get higher relative market share
o Exit these markets focus more on attractive core business
Valuation
• Given business plan, and exit multiple/timing we could make this work if we pay x price
• Motivate exit multiple
o Long-term multiple in industry look at comps/precedents
• Motivate entry multiple, is it actionable? Premium/discount to peers?
o Current comps/Precedent transactions? Reasonable for our case?
• Do we believe in business plan to make this work?
Investment Risks and Mitigants
• Cyclical / diversify / aggressive competitors
• Company specific risks / Mitigants
Deal
• Exit strategy
o Strategic angle?
o IPO candidate?
What kind of multiple can we get?
o Another financial sponsor?
• Competition?
o Good IPO candidate already?
o Strategic buyers?
o Other financial sponsors
Further Diligence Items
• More due diligence in understanding how defensible their market share is
• Quality of Earnings
• Account issues
• Legal diligence
How does the company generate revenue and what drives it?
SvaraRadera• Segments
o Customer/Customer/Business Unit
Sources of growth?
• Market growth
o Volume
Existing products to existing customers
New products to existing customers
Existing products to new customers
New products to new customers
o Price
Competition
• New entrants
Demand
• Increased importance
Substitutes
• Viable options?
Supply
• Increased/decreased supply
• Market share
o How gained market share?
Quality/differentiation
Price
Regional expansion
Customers
• M&A
o Buy-and-build
o New technologies
What is the Market dynamics? / Competitive Positioning
• Define the market
o Who uses the product?
o How much is it used?
o Nature of product?
• Industry map, which segments?
• Who are the competitors?
• Are there any competitive advantages?
o Market share stability
o High return on capital
• What are the sources of these competitive advantages?
o Demand side
Customer captivity
• Habit
• Switching costs
• Network effects
• Standardized products
• Search costs
o Supply side
Superior production technology
Privileged access to resources
o Economies of scale
Lower cost structures due to either lower input costs
Depends on the size difference between it and its rivals on market share
• Average cost per units decline as a firm produces more
• Larger firm can be highly profitable at a price level that leaves its smaller competitors with higher average cost
Fore scale economies to serve as a competitive advantage, then, they need to be coupled with some degree of incumbent customer captivity
• First case – zero competitive advantage
o Forget strategic dreams
Operational efficiency
• Second case – Customer captivity / supply side
o A company with captive customers can charge more
Innovative products
Brand
Quality
Customer lock-in
o If advantage from lower cost
Strike balance between underpricing to increase installed base/charging the same to keep benefit of cost advantage
• Customer captivity and economics of scale
o Longer lived than other types
o Advantages based on scale economies are vulnerable to erosion
• Can be created
o High fixed costs, an individual firm has opportunity to gain share
If it has customer captivity it will be defensible
How profitable is the business and how is it financed?
• Unit Economics
o ROIC per unit = (Price per unit – variable cost – fixed costs/volume) / Invested Capital per Unit
o EBITDA Margin
COGS
• Material costs (fixed & variable
• Direct Labour (Fixed & variable)
• Overhead costs (Fixed & Variable)
SG&A
• Selling (Fixed & Variable)
• G&A (Fixed & Variable)
R&D
• Investment & relation to future sales
o Benchmark vs competitors
o Centralise buying
o Analysis of suppliers
o Capacity utilization
• Interest
o Leverage / risk
• Tax
o Re-domicile
o Efficient structure
o Transfer pricing
• Capex
o Maintenance capex
o Expansion capex
Drive revenue
• NWC
o AP
Negotiations with suppliers
o Accounts receivables
Credit losses
Strategy
o Inventory
Lean
Just-in time
• Other
o Divestable units?
o Sale & leaseback
• Leverage
o Asset base
o Business cycle
o Interest rate
o Reliability of revenue / cash flows
o Equity / Debt ratio
o Amount of leverage
o Capacity to pay interest
o Covenants
o Lending terms
• Risk
o Macro
o Overall industry risk
o Company specific risk
Size
Position within industry
Competitive position
Disruption
What value levers can we pull?
Given business plan, what can we pay?