We believe there is a gap in the small to mid-sized segment of the private equity market. Companies at this end of the market, have difficulty engaging with larger investment banks and funds. Additionally, we believe that many private equity firms at the smaller end of the market lack the operational experience and market focus required to truly understand the business of their clients… and consequently add value.
Valero is unique in that we have a small team of partners with real-world experience. We understand how corporate buyers and sellers think about smaller transactions and what it takes to get a deal done. We are structured to ensure that portfolio companies receive the focused attention of a General Partner who has likely managed a similar business and understands the market in which the client company competes.
Our General Partners are intimately engaged with each portfolio company. We often take on operational roles as part-time members of the management team, and a partner may spend 10% to 25% of his time helping a portfolio company grow the business. Leveraging our operational experience and our extensive network of industry contacts, we work closely and diligently with each portfolio management team to deliver value throughout the lifecycle of a portfolio investment as further illustrated below.
We focus only on markets we know well and where we have a strong network of industry contacts. Therefore, we often identify and pursue potential investments on a proprietary basis. We follow a disciplined due diligence process and are value driven in our negotiation process. We utilize debt leverage, where appropriate, and often partner with sellers who may co-invest a portion of their equity into the new business. Through the above practices and disciplines, we have historically acquired businesses at valuation multiples lower than the industry average.
Historically our portfolio companies have grown top line revenue and bottom line EBITDA at nearly 20% per year. We have achieved this result by:
- partnering with management teams to identify new product and market opportunities.
- leveraging our industry contacts to establish new distribution channels and strategic partnerships.
- adding experienced and field proven talent to portfolio management teams and boards.
- working closely with management to implement operational improvements and cash management techniques to improve the margins and liquidity of acquired businesses.
We have exited our businesses at multiples above industry averages through a relentless focus on and execution of a clear plan which positions the company to be of strategic value to potential acquirers. We begin identifying potential acquires during our due diligence process before we acquire a business. Our experience in having executed acquisitions for larger companies gives us a unique perspective on what these companies are looking. We focus on strategies and results that yield multiple exit options and generate premium returns. Finally, with our significant M&A experience, we know what it takes to realize an attractive exit. We understand when to start the process, how to run a competitive process and how to position a company for maximum value. Our relationships with the senior management teams of many prospective buyers in our target markets, as well as with the investment banking community that serves these companies, further enhances our ability to get deals done and achieve premium returns for our investors and portfolio management teams.
Lastly, we understand that ultimately management teams make things happen. Therefore, we provide financial incentives to management teams to align their objectives with ours. In order to consistently achieve premium returns, we look to invest in management teams that are driven to achieve success for the company, for themselves, and for Valero’s investors.