Capital Cycle Theory
How Capital Flows Effect Private Equity Returns
Happy Wednesday folks!
Thanks for joining us for another edition of Atlasview Insights. We use this newsletter to share our strategies, philosophies, experiences, and lessons we’ve learned along the way. Small bite-sized insights for business owners, dealmakers, and investors.
In this newsletter, we cover:
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Capital Cycle Theory
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Have An Opportunity For Us?
Before we jump into this issue, a quick reminder, Atlasview Equity Partners is a private equity firm that acquires and builds capex-light B2B businesses. For platform investments, we look for:
Business Model: vertical software, business services, specialty distributors
Business Size: minimum $1m EBITDA or $10m revenue
Business Profile: sticky B2B customer base
Business HQ: US & Canada
For add-on acquisitions for our portfolio companies, we have no size/geography criteria. We’re actively seeking add-ons in the library, archive, legal, and government niches.
Whether you’re a business owner interested in working with us, or an intermediary with a deal to share, always feel free to contact us!
Capital Cycle Theory
Popularized by Marathon Asset Management via the book Capital Returns, Capital Cycle Theory dictates that investor returns are largely impacted by the capital flowing in or out of industries. Being on the right side of capital flows can generate sizeable returns. And being on the wrong side of capital flows can absolutely destroy your returns.
When an industry experiences growth, it will attract excess capital from investors (mostly due to investors over-extrapolating growth). Two main things happen when too much capital flows into an industry:
Supply increases: the excess capital attracts new competitors to launch
Capex overspend: businesses spend too much on assets (or even worse, opex)
The combination leads to businesses generating lower ROIC (profitability compresses while capital base increases). The result is that investor returns worsen subsequent to excess capital flows. Conversely, when capital is sucked out of an industry – investor returns will, generally, subsequently improve.
There is no such thing as a “secular growth” industry. Every industry is cyclical from a capital standpoint and some cycles are longer than others. Before investing in a business, we always get an understanding of where the industry stands in the capital cycle. We want to avoid industries that are too saturated in capital or has recently seen a large amount of institutional capital in flow.
In Case You Missed It
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Our Process at Atlasview
We pride ourselves on having a simple and transparent process. Our streamlined process enables us to move quickly to get you answers fast.
Step 1: Contact Us
Step 2: Execute NDA & Schedule Call
Step 3: Receive Offer & High-Level Terms
Step 4: Execute LOI & Complete DD
Step 5: Close Deal & Receive The Cash
Step 6: The Fun Part Begins!
Whether you’re a business owner interested in working with us, or an intermediary with a deal to share, always feel free to contact us!
About Atlasview
Atlasview Equity Partners is a private equity firm that acquires and builds capex-light B2B businesses. We combine patient capital with proven strategies to deliver predictable results for our stakeholders.