Anytime Atif Gilani, founding partner of Renovus Capital Partners, evaluates an investment, he and his team are asking themselves three key questions: Is the business investable. If so, what are the terms and price at which they would be willing to invest? And, once they made the investment, what can they do with the company?
“So, whether a business is investable or not, if it has an appropriate management team, does it have a value proposition that will sustain it for many years to come, those type of things," Gilani said at last year's Philadelphia Smart Business Dealmakers Conference. "And thirdly, on that, whether we believe this is a long-term, growing business. We don't like to invest in anything that is not growing.”
Terms and price, he says, are done on a deal-by-deal basis. Buying primarily from founders, he says they customize a deal to the needs of a specific transaction.
“And on our ability to create value, increasingly that is becoming a threshold issue for us," he says. "We have a buy-and-build strategy of going in, buying a good platform with a good management team, and then making more capital available to them for both organic and inorganic growth.”
For sellers to increase the odds of a sale, he says they need to communicate with their executive team.
“Many founders keep their executive team in the dark," Gilani says. "I think that leads to surprises along the way that you don't want to have.”
In addition to making sure to hire good advisers to help guide the company through a process, he says those who are in a process should have some level of conservatism in their numbers, and don't miss them. And lastly, he says companies should make sure nothing will come up in a background check that will derail a process.
As an investor in previously founder-owned businesses, he says the ESG aspect used to be more for his investors. But what has changed in the past couple of years is that the employees, when his firm holds townhall meetings after making an investment, are asking questions about changing some of the policies, whether they're focused just on making the highest EBITDA or if they’ll stay true to the acquired company’s mission. So, he says part of their approach is to demystify their way of private equity investing.
“In that regard, we published our first ever impact report. It is on our website. We mention it to all our team members at the portfolio companies for them to go and review," he says. "It's become a good source for us to attract talent and recruit talent. So, the human capital aspect, that is the aspect that I find different today versus a couple of years ago.”
Looking at larger trends in the market from his point of view at the time of the Conference, he says he was seeing processes that they were involved in becoming a little bit more competitive. That, he says, was a function in part of more buyers coming back into the market and of some of the concerns of a short-term recession dissipating, though not disappearing. He says while there was a heightened degree of concern about the sustainability of the current level of earnings, as the year was closing it gave people real numbers. The companies that continue to perform at the end of the market his firm plays, which is sub $10 million in EBITDA, were getting good valuations. Further, some upmarket buyers were making their way down market and competing for some of the same companies as his firm.
