Evaluating Pricing Power
How To Tell If A Business Has The Ability To Raise Its Prices
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:
Our Investment Criteria
Evaluate Pricing Power
ICYMI - Popular Previous Issues
Our Deal Process
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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 B2B businesses in the lower middle market. For platform investments, we look for:
Business Model: software, business services, value-added distributors
Business Size: minimum $1.5m 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 seeking add-ons in the library, archive, legal, and government niches for our portco Soutron Global and HVAC distributors for our portco PureFilters.
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!
Evaluating Pricing Power
At Atlasview, we highly value businesses that can consistently raise prices without losing customers. Pricing power is a critical indicator we assess when evaluating new investment opportunities. As the Oracle of Omaha best put it:
We often find that many businesses, particularly owner-operated ones, haven’t priced their products/services to reflect their true value. Price optimization is one of the first value-creation levers we pull post-acquisition. It’s one of the fastest and most effective ways to grow revenue and improve profitability and cash flow, which ultimately increases enterprise value.
Here are five key elements we look for to determine if a business has pricing power:
1 - Product or Service is Mission-Critical
A mission-critical product or service is integral to customers' essential operations or daily activities. When customers heavily depend on your offering, they become more accepting of price increases.
2 - Switching Costs Are High
Products or services with significant switching costs impose substantial expenses, time commitments, operational risks, or inconvenience on customers seeking alternatives. These high barriers discourage customers from switching, thus granting businesses more leeway in raising prices.
3 - Price Represents Low Share of Customer Wallet
When a product or service represents a low share of the customer's wallet, it means the cost is relatively small compared to the customer’s overall budget. Additionally, the smaller the contract or order value, the less likely it will be negotiated or put through an RFP process. This allows the business to raise prices without much adverse reaction.
Bonus points: the customers have large & growing wallets!
4 - Value is More Important Than Price
The value a customer derives from the product or service is far greater than the price they pay for it. This makes customers far less sensitive to price increases since there would remain a large delta between the value received and the price paid, even after the increase.
5 - Little to No Alternatives
The product/service is specialized to a specific niche, and there are very few, or no, comparable alternatives. Such niches rarely attract significant outside competition or capital influx from ambitious start-ups, thereby bolstering pricing power. This is one of the primary reasons we are particularly attracted to niche vertical businesses.
While it is uncommon for a business to possess all these characteristics simultaneously, having even a couple can substantially enhance its pricing power and attractiveness as an investment.
In Case You Missed It
Here are some of our previous popular issues:
Atlasview-Backed Soutron Global Completes Take Private of Auto-Graphics
Agent Information Software, Inc. (OTCPK: AIFS), parent company of Auto-Graphics, Inc. (“Auto-Graphics”), a pioneer in State Interlibrary Loan (ILL) software systems, announced today that it has been acquired by Soutron Global, a portfolio company of Atlasview Equity Partners & Bloom Equity Partners.
Money Costs Money - How Growth Can Destroy Value
We all understand the obvious ways that growth can destroy value—unprofitable business models, negative gross margins, or scaling something that was never economically viable in the first place. But even profitable growth can destroy value!
Atlasview Discusses Cross-Border Deals in The Earnout Magazine
At Atlasview Equity Partners, we have extensive experience investing across borders, particularly between the US and Canada. Despite ongoing trade tensions and tariff discussions, we remain strong believers in the value of cross-border deals. The US and Canada share deep economic ties, and we expect this partnership to remain strong for years to come. Periods of uncertainty often create opportunities for shrewd investors.
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 Us
Atlasview Equity Partners is a founder-first private equity firm specializing in acquiring and building businesses in the lower middle market. Atlasview seeks businesses with defensible moats and multiple levers to add significant value to create an asymmetric returns profile. Atlasview works closely with management teams to execute organic and inorganic (M&A) growth initiatives to build businesses into market leaders.