Understanding Private Equity - Different Investment Strategies and Time Horizons

Family Business With Purdeep Sangha

Here are the bullet points on the topics covered in the podcast episode:
- Private equity firms typically seek deals with small to medium enterprises in industrial infrastructure services.
- The most traditional way to access deals in these areas is through brokers and smaller investment banks.
- Partnerships with owner operators have been successful for private equity firms and have resulted in warm referrals.
- Warm referrals from current business partners or owner operators who have exited businesses with the private equity firm are the most powerful way to get introductions.
- Cold calling is also a classic way to get introductions.
- Regulatory requirements for private equity firms are less strict than those for public companies.
- Private equity firms are required to provide audited financials on an annual basis.
- Private equity firms must have measures in place to prove responsible management of investor wealth.
- The trend in the industry is towards increased transparency and accountability towards investors.
- Private equity is often associated with explosive tech growth companies, but this is actually venture capital.
- The focus of this private equity firm is on stable, recurring revenue-focused businesses.
- Key metrics for potential investments include strong recurring revenue and recession resiliency.
- All businesses in the firm's portfolio have strong ties to government bylaws or codes, providing a stable base for operations.
- Canadian jobs data for today was relatively strong, which is interesting during an economic downturn.
- Finding good people for businesses is difficult at the moment.
- The speed at which inflation came was unprecedented in comparison to historical comparables.
- The speaker anticipates some pullbacks in public markets throughout 2023.
- Strong recurring revenue portion of businesses tied to government codes is important for cash flow and passing on to investors.
- Investors should properly allocate their portfolio and not be tempted to leave things as is.
- Private equity investment may be difficult psychologically, but long-term holding can result in similar or better returns as principal residence investment.
- Private equity is different from typical retail bank investments in equity and fixed income.
- Private equity deals with businesses not available on public exchanges, such as industrial businesses or tech companies.
- Buying and selling private equity assets takes a longer time, so the investment is less liquid.
- Private equity investments typically have a 5-year plus time horizon and require a portfolio of investable assets above a million dollars.
- New Look focuses on two sectors: industrial infrastructure services and dental space in Canada, so investors looking for more diverse options may need to look elsewhere.
- The million-plus range is the sweet spot for New Look, but other factors, such as goals and need for money, can influence investment decisions.
- Private equity has become more popular in the last decade.
- Private equity involves investing in private enterprises.
- There is often a lack of security with private equity investments compared to investing in the public markets.
- The podcast editor wants to know about the regulations and protocols followed by private equity firms to ensure transparency and responsible management of money.
- Private equity, acquiring businesses and structuring them effectively are discussed.
- Knowing what buyers are looking for is important for effective business structure and potential sales.
- Many business owners don't plan for a potential sale until it's too late and may sell for a lower value than they could have.
- The podcast editor wants to discuss what a buyer looks for when acquiring businesses in a future episode.
- Majority position is always taken by the platform company
- Private equity strategy focuses on fragmented industries and consolidation under a larger brand
- Platform or larger company is found to partner with for acquisitions
- 60%-70% ownership structure is maintained, with current owner operator retaining 30%-40%
- Additional acquisition opportunities are pursued and integrated into the platform company
- On the dental side, 100% of clinics are acquired and owning operating dentist is retained for 8-24 months to transition clientele to next associate.
- Businesses often focus on day-to-day operations and growth until they reach a point where they want to sell their business within 3-5 years.
- To be a good acquisition opportunity for a strategic or private equity firm, the business needs to be in its best position, which involves a mixture of art and science.
- Key metrics and logical accounting practices can contribute to making the business a good acquisition opportunity.
- To make sure the business is in a good position, steps can be taken to ensure that accounting practices are easily followed and due diligence is not difficult.
- Private equity firms are often perceived as cutting costs at the expense of patients, clients, and employees, but this is not always the case.
- The speaker has been in finance for 7-8 years, starting in estate planning before moving to investment advice.
- They joined New Look Capital to expand their knowledge of alternative investments and provide better investment advice to Canadians.
- New Look Capital aims to provide institutional quality investment experience to Canadian investors, making opportunities such as private equity and credit attainable for everyday Canadians.