Investment Approach » Overview
We believe in the following investment principles:
All Businesses Are "People" Businesses
- We invest in people we trust and strive to treat management, deal sources, advisors and partners with respect and complete honesty at all times.
Invest in Steady Performance rather than Speculative Growth
- We are attracted to consistent, profitable performance with achievable growth objectives and improvement opportunities.
Invest in Businesses We Understand
- We do not speculate on technology or products in which we are not intimately familiar.
Niche Companies Are Often Attractive
- We look for leading market positions, high barriers to entry and high profit margins.
Identify and Qualify Risk
- We strive to understand clearly the risks of competition, foreign sourcing, cyclicality and customer concentration.
Prudent Use of Leverage
- Companies that perform will pay down debt and can be recapitalized at a later date if further leverage is desired.
Stone Arch Capital seeks to invest and partner with business owners who remain committed to stewardship and the future growth of their business. At the same time, we are keenly aware of an owner's desire to achieve liquidity for themselves, their family members, and other stakeholders. Following are examples of Stone Arch investment scenarios:
- Diversification: The owner is committed to continuing to manage the business, and recognizes its growth opportunities, yet wants to diversify his or her assets, while retaining a minority ownership position.
- Passive Stakeholder Exit: Stakeholders actively managing the business seek to provide passive or outside stakeholders with liquidity, while creating a new ownership structure to promote future growth.
- Growth Capital: The owner has indentified attractive growth opportunities for the business through add-on acquisition, product line extension, or geographic expansion, but is reluctant to commit additional risk capital.
- ESOP Plan Dissolution: The passage of time and diverging stakeholder interests require a recapitalization that allows for participants to exit, while other participants will rollover into the new capital structure.
- Succession Planning: The owner seeks to foster a process that facilitates estate planning and diversification needs, while providing a future growth opportunity for younger family members and/or non-related members of the management team.