Stone Arch Capital

Investment Approach » Investment Criteria

Midwest Geographic Focus

  • Concentration in the Midwest market, including Illinois, Iowa, Indiana, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin
  • Companies located outside the Midwest where there is a high likelihood of investment due to special circumstances

Lower Middle Market Focus

  • Deal sizes generally between $20 and $100 million
  • Equity investment sizes generally between $10 and $25 million
  • Logical add-on acquisitions or product extensions

Companies with History of Positive Earnings

  • EBITDA greater than $5 million
  • Sustainable operating margins (usually 10% or higher)
  • Predictable capital intensity
  • Opportunities to grow revenue and improve earnings

Sector Focus

  • Wide variety of manufacturing and service industries, excluding real estate, technology, and commodity industries
  • Particularly sensitive to technology and regulatory risks within industries
  • Understandable businesses

Operating Expertise / Management

  • Strong management willing to stay and invest
  • Ability to leverage and attract relevant operating expertise through our Advisory Council and network of executives

Niche Company Focus

  • Protectable market positions with high barriers to entry
  • Established and diverse customer base
  • Less cyclical in nature
  • Ability to identify foreign sourcing risk and opportunity

Transaction Structure

  • Flexibility of investment (majority, minority, public or private, consolidations, recapitalizations, etc.)
  • Conservative capital structure
  • No hostile transactions