Fancy trying to catch a falling knife? There's probably no better analogy to describe distressed businesses. They are not for the feint at heart.
I admire people who take on the challenge because ultimately they save jobs and help the economy grow.
If you decide it's for you then please make sure it's not your first investment and make sure it's not your last dollar!
I admire people who take on the challenge because ultimately they save jobs and help the economy grow.
If you decide it's for you then please make sure it's not your first investment and make sure it's not your last dollar!
My top 5 investment criteria for distressed private equity (£5m - £40m cheques):
1. New Management Team – Do they have a track record of doing effective turnarounds? Do they have skin in the game?
2. Revenue and GP Margin – If I sort out the cost base, will this business be profitable? Relying on revenue growth is a fools game and while GP margin can be improved, it must be respectable in the first instance.
3. Market Growth – Are we trying to catch a falling knife or is this a good sector to be in?
4. Cash Requirement – Constantly throwing money into a failing business is not much fun. Rather buy a boat.
5. Downside Protection – If all my turnaround estimates are wrong, what is the underlying value of what I am buying?
I hope you enjoyed this series on the fundamentals of investing. Remember, this is not advice but rather some things to be cognisant of when considering making investments.
Good luck, it’s often a big factor too!
Alex @ The Tippy Top Blog
Please Like, Share, Follow and Subscribe to The Tippy Top!
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Key:
1 of 5 - Intro
2 of 5 – Angel Investing (£50k – £500k)
3 of 5 – Venture Capital (£500k - £5m)
4 of 5 – Growth Private Equity (£5m - £40m)
5 of 5 – Distressed Private Equity (£5m - £40m)
1. New Management Team – Do they have a track record of doing effective turnarounds? Do they have skin in the game?
2. Revenue and GP Margin – If I sort out the cost base, will this business be profitable? Relying on revenue growth is a fools game and while GP margin can be improved, it must be respectable in the first instance.
3. Market Growth – Are we trying to catch a falling knife or is this a good sector to be in?
4. Cash Requirement – Constantly throwing money into a failing business is not much fun. Rather buy a boat.
5. Downside Protection – If all my turnaround estimates are wrong, what is the underlying value of what I am buying?
I hope you enjoyed this series on the fundamentals of investing. Remember, this is not advice but rather some things to be cognisant of when considering making investments.
Good luck, it’s often a big factor too!
Alex @ The Tippy Top Blog
Please Like, Share, Follow and Subscribe to The Tippy Top!
Twitter | Facebook | Instagram | LinkedIn | Snap | BlogLovin' | Medium | Pinterest
Key:
1 of 5 - Intro
2 of 5 – Angel Investing (£50k – £500k)
3 of 5 – Venture Capital (£500k - £5m)
4 of 5 – Growth Private Equity (£5m - £40m)
5 of 5 – Distressed Private Equity (£5m - £40m)
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