Unlike most private equity funds, we are not buyers of companies. Rather, we provide capital to business owners and management teams in support of specific objectives – whether it be to facilitate a growth opportunity, support a balance sheet recapitalization, or acquire a competitor, among other things.
Generally speaking, our capital is utilized in situations where a company’s bank can’t or won’t provide the entire dollar need (either because the company’s asset base doesn’t support it or the desired capital uses don’t fit within the bank’s risk profile), and raising pure equity capital would be unnecessarily dilutive to its shareholders. We look at enterprise value – the value of the business as a whole – and cash flow stability, rather than assets, as a primary mitigant of risk, which affords us significantly more flexibility in our approach to providing capital.
The securities that we employ embody this flexibility – typically our investments involve any combination of:
In all situations, we customize the mix of our securities to match the specific needs of the company that we seek to partner with. We have an orientation towards current yield (generally a minimum of 8-10% on invested dollars), but also we also strive to align our incentives with management through equity or equity-like features.
Typically this alignment takes the form of warrants attached to one of our securities or a purchased investment in a company’s equity as the opportunity allows. Because effectively one-half to two-thirds of our targeted returns are generated through current yield, our capital is significantly less-expensive and less-dilutive than pure equity capital, while our equity incentives afford us more flexibility around month-to-month and year-to-year performance than that of a pure lender.
At Seacoast, we pride ourselves on our investment approach as well as the relationships that we develop with the management teams who operate our partner companies. We do not act as a lender or simply a provider of capital, but rather as a true partner that enjoys the challenges, frustrations, and successes that come with managing and growing a lower middle market business. We seek to be an engaged, active partner who can provide counsel, insight and relationships at the board level but at the same time we have enough humility to know that we are not operators. We find that our partner companies appreciate our value add and strategic guidance – as a testament to this, many members of our partner companies’ management teams have become investors in subsequent Seacoast funds.