Why sell your 'baby' now?
We believe that business owners outside of high technology and healthcare/pharma will be faced with two clear options if they wish to preserve their net worth tied to their companies: either (i) monetize within the next 18 months at favorable valuations, or (ii) be forced to hold through another 10 year cycle - recession and subsequent recovery akin to 2008.
From a shorter term perspective, we believe that the economy has a high probability of spiraling into a recession in the next two years. The current business environment reflects a 'rosy' picture of economic expansion that has not only created a unique window of favorable valuations to business owners, but also is unsustainable post-election and will close quickly.
The four key unsustainable ingredients that underpin our concern are as follows:
(i) interest rates are at an all-time historical low (~100+ yrs);
(ii) sustained rounds of historical quantitative easing since the 2008 crisis are widely acknowledged as unsustainable;
(iii) increased demand from emerging economies for US produced goods and services has benefited demand domestically;
(iv) massive energy cost stimulus versus the prior economic peak (65%+ crude oil discount; 70%+ natural gas discount).
From a long term perspective, the vast majority of business owners are kicking the proverbial can down the road. According to Bain Surveying, Inc., 47% of middle-market business owners aged 55 and older are interested in selling their businesses within three years. However, more than 90% them, have not begun the planning process. Why? Because many owners are so focused on operations that the daunting task of the future leadership of the company takes a back seat. That is, until it becomes eminent.
We are fellow entrepreneurs. We are passionate. We are analytical when need be, and scrappy when similarly appropriate. We are different and strive to set ourselves apart from strategics or other short term investors whose interest in your company relies on extracting value through either: disruptive cost cutting and widespread job cuts; or quick capital returns by 'flipping' companies in a three to five year time frame or other onerous restructuring alternatives.
Most importantly, we are long term partners seeking a business to operate, for at least 10+ years ideally. Fifty Fifth Capital provides owners with a legacy friendly alternative with the flexibility either to exit fully, or to retain a less involved strategic role as desired. We seek sound businesses with established operating histories, rather than startups and turnarounds.
More detail on the types of businesses that excite us can be found here.