Generating Compound Returns
Free Cash Flow + Reinvestment
Happy New Year 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:
Have An Opportunity For Us?
Generating Compound Returns
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: vertical software, business services, specialty distributors
Business Size: minimum $2m 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!
Generating Compound Returns
To generate compound returns over the long term, a business requires two key components: 1) free cash flow and 2) reinvestment opportunities. At Atlasview, when evaluating a potential platform investment, we prioritize ensuring that both components are present.
Let’s explore each in more detail.
1. Free Cash Flow
Stable and predictable free cash flow de-risks the investment and unshackles the business from being at the mercy of capital markets. It also creates capital allocation optionality to pay out a dividend, pay down debt, or allocate to reinvestment opportunities.
At Atlasview, we prioritize businesses with a long operating history and a proven track record of free cash flow generation. Additionally, we assess whether the cash flow is well-protected against internal and external threats. One of our preferred tools for evaluating these threats is Porter’s Five Forces, discussed in more detail in this post:
Post-acquisition, Atlasview partners closely with management to implement value-add initiatives that enhance free cash flow. Our playbook focuses on driving revenue growth, improving margins, and optimizing working capital. We discuss some of these initiatives in this post:
Of the two components required for compound returns, free cash flow is non-negotiable. Without stable free cash flow, reinvestment opportunities become irrelevant. Once a business meets this critical criterion, we shift our focus to reinvesting that cash flow.
2. Reinvestment Opportunities
Reinvestment opportunities are what allow a business to achieve significant long-term growth. At Atlasview, we favor businesses with clear and compelling reinvestment opportunities and are eager to make follow-on investments post-acquisition to capitalize on them.
In terms of reinvestment into organic growth, it typically focuses on sales/marketing and research/development. We look for initiatives with a clear return on investment (ROI) and a payback period of 12 months or less. We discuss payback period in more detail in this post:
In terms of reinvestment into inorganic growth, Atlasview works closely with management teams to source and execute add-on acquisitions. Growing through M&A is an excellent way to scale a business quickly. Reinvestment via acquisitions can help businesses:
Acquire new customers or revenue streams
Expand into new geographies
Add synergistic product lines
Bring in top-tier talent
The ultimate goal of reinvestment is to transform businesses into market leaders and deliver outsized returns to shareholders, which often include the management teams we partner with.
In Case You Missed It
Here are some of our previous popular issues:
Atlasview-Backed Soutron Global Acquires MINISIS
Adjusted EBITDA 101
Capital Cycle Theory
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 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.