QUESTIONS & ANSWERS
What are the characteristics that Lynwood Capital looks for in businesses they invest in with private equity funds?
It is difficult to set hard and fast parameters. Lynwood Capital is a generalist investor. Often, we surprise even ourselves with the companies that we aggressively pursue.
We like fundamentally strong businesses with good people. We appreciate simple, niche enterprises. Lynwood Capital has been investing successfully for more than twenty years. Over time, we've developed various biases about businesses and tend to judge companies and situations against these sentiments. We will not waste anyone's time pursuing a company if, after talking to the owner(s) or their representative and learning some very rudimentary information about a business, we know it wouldn't be a fit for us.
We try to be good listeners and tailor our investment proposal to the situation at hand and meet the various financial and intangible objectives of the business owner and/or the principals of a company.
How many private equity opportunities does Lynwood Capital review in a typical year?
We generally look at over five hundred companies a year and actually visit about one per month. If we visit, we're serious and have had at least one call with the principals of the business.
Of those, how many letters of intent (LOIs) do you submit? How many do you close on?
Unlike some venture capital and private equity firms, we only provide an LOI if we are confident we will finance and close. Otherwise, we would be wasting everyone's time. We don't view a LOI as the place to start the negotiation. Consequently, we do our homework up front, doing our best to really get to know a company, its people and the business situation. Our competitors like to boast about how many LOIs they submit and execute with sellers. They attempt to make a case that they exercise discipline by only closing a percentage of the LOIs they execute, but this is usually because they try to re-trade the deal even if there aren't material findings during the diligence phase, which sometimes there are.
Is the current economy impacting the number of private equity opportunities, LOIs and closings?
If the buyer is experienced and has a track record and strong relationships with financing partners, the present economy and financing environment shouldn't make any difference.
What is Lynwood Capital’s typical investment capital financing structure, and what types of private equity partners are involved?
There is no typical structure! It all depends on the circumstances and the needs of all constituencies, and what is necessary to ensure the future success of the business.
At Lynwood Capital we spend time cultivating and solidifying the relationships we have with existing equity financing partners in portfolio companies. We also identify other private equity investment firms and lending institutions with whom we'd like to partner. As generalists, we're never quite sure what kind of deal is around the corner, and we really strive to bring the best financing partners to each new investment, unless we finance an investment with an all equity balance sheet.
What kind of an impact, if any, has the “credit crunch” had on Lynwood Capital’s private equity investment practices, criteria, or partners?
We're “steady as she goes.” We've been investing for over two decades, so we've seen it all: the excesses, the high and low levels of activity. We rely on our long-standing financing partner relationships and track record to get deals done in unsettled financing environments. In most credit and business cycles, the big deals are the ones most impacted by changing or more limited financing alternatives. Our focus, the so-called smaller, middle-market deals, seems to be impacted less by the vagaries of the credit markets.
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