Frequently Asked Questions
What is the difference between venture capital investing and leveraged buyout investing?
Venture investing is when an investment firm provides capital in exchange for equity in very early stage companies, such as internet or biotech companies that do not have a long operating history, if any, of generating revenues, but tremendous growth opportunities. While there are many investment firms around the country that specialize in early stage venture capital funding for start-up companies, MCM limits its investing activities to leveraged buyouts or recapitalizations in companies that are generating at least $15 million in annual revenues. The typical leveraged buyout investor will acquire a company with their own equity capital in conjunction with bank financing in more well-established firms that have a track record of generating revenues and cash flows that can support a prudent amount of debt that can be secured by assets in the transaction. Leveraged buyout investors typically seek returns of 25%-35% versus venture capital investors that are seeking returns in excess of 35%.
Would you please explain how you define lower middle market?
MCM’s definition of theL lower middle market are those companies generating annual revenues of $15 million to $75 million.
What is MCM’s criteria for platform businesses as well as add-on acquisitions?
See our investment principles.
Are there any industries that MCM will not invest in?
We generally avoid real estate, venture capital start-ups and heavily regulated industries.
I am currently a CEO and the largest shareholder of a business and am interested in achieving some degree of liquidity and diversification of my net worth by selling a portion of business. That being said, I am not ready to retire and would like to structure a transaction that would allow me to retain operating control of my business. How could MCM help me accomplish my objectives?
Your objectives are not dissimilar from many of the CEO’s that we speak to that are looking to “take some chips off of the table”, but are not quite ready to retire or give up operating control of their respective businesses. A leveraged recapitalization would be an ideal transaction for you as it would: (1) allow you to achieve a substantial liquidity event for either a minority or majority share of your ownership in the business; (2) provide an opportunity to broaden the ownership of your business to your management team either via a direct investment on the same terms and conditions as MCM’s investment or some form of incentive stock option plan that could be established in concert with this transaction; (3) preserve your management team’s independence as we rely on management’s talent to run the daily operations of our portfolio companies; and (4) position the company to continue its growth, either organically or via acquisitions, as MCM will essentially serve as your company’s “outsourced corporate development arm”.
Will MCM take minority equity positions in companies?
We have taken minority positions in companies in the past and we will continue to take minority positions in the future. When MCM does take a minority position in a portfolio company, we typically require certain corporate governance controls, such as board of director representation. These terms are negotiable on a deal by deal basis.
Our privately held company has great opportunity to build market share through strategic acquisitions, but we do not have the capital structure to finance acquisitions, the financial expertise in evaluating acquisitions or the human resources to pursue such a time consuming task. How could MCM assist us in capitalizing on this opportunity?
MCM could assist you in accomplishing this objective in a variety of ways. First, any meaningful acquisition strategy to grow your business is going to require bank financing, which will lead to an increased level of leverage at your business. MCM has strong relationships with some of the largest lending institutions in the country, many of whom are limited partners in our fund. Second, we have the experience in identifying, evaluating and structuring acquisitions as we have been participating in the leveraged buyout industry for over twenty-five years. Finally, MCM has access to thousands of business intermediaries around the country that we would access to help us identify acquisition opportunities that would be synergistic with your business. While MCM would essentially act as your company’s outsourced corporate development arm, we would work closely with you through the entire acquisition process.
Is it MCM’s desire to become involved with its portfolio companies on a day-to-day basis?
MCM’s investment philosophy has always been to partner with strong management teams that have demonstrated their ability to successfully run the operations of a business. Accordingly, rather than being involved with the daily operations of any of our portfolio companies, our objective has always been to assemble a value-added board of directors that can either provide strategic advice to management or present new business opportunities. In addition, MCM can serve as a very valuable resource to a management team when it comes to identifying, evaluating and structuring acquisitions as well as providing guidance and advice on other matters regarding the company’s finances, human resource needs, etc.
What is the process that MCM undergoes when acquiring a company? Also, how do you ensure the confidentiality of our discussions to both our competitors as well as our employees that may not know that the existing shareholders are contemplating bringing in outside investors?
The first step in the process is to hold a conference call with you to discuss your business, MCM’s interest in your business and confirm that we have common interests in pursuing a transaction together. Assuming that our conference call goes as expected and that our interests are aligned, we will schedule a time within the next week to come visit with you at your offices so that we can get to know each other on a more personal basis and so we can learn more about your business. To reduce the chances that your employees figure out that you are exploring a transaction with your company, we are pleased to dress casually during our visit to your company. Naturally, we will execute a Confidentiality Agreement prior to you disclosing any confidential materials to MCM.
How much is MCM looking to invest in a transaction?
In general, we are looking to invest from $2,000,000 to $7,500,000 in equity in any one transaction. For transactions that require an equity commitment in excess of $7,500,000, we typically will partner with one of our strategic co-investors.
Would you be willing to provide references?
To provide you with first hand knowledge of how MCM interacts and adds value to our portfolio companies, we would be pleased to provide you with direct access to the CEO’s of our companies. We would be willing to provide you with professional services references, such as attorneys, bankers, etc.
I am a senior executive (CEO, COO, CFO) that has been involved in running a large division of a company and have found myself without a job as a result of a corporate-wide downsizing program, the sale of the division to a competitor or some other reason. I have a desire to stay active and would like to buy a company or become part of the senior management team at one of your portfolio companies.
We are always interested in meeting proven executives from a variety of disciplines for open positions at existing portfolio companies as well as potential portfolio companies. Please fax us your resume along with a letter as to what your personal interests are in getting involved with one of our portfolio companies to (216) 514-1850.
I am a business intermediary and have a potential acquisition for your firm. What is your policy in paying intermediary fees?
MCM is pleased to pay standard intermediary fees for any investment lead that culminates in a transaction.