Old Emerging Growth - Private Equity

Private Equity Investing

Balmoral is primarily engaged in the purchase of significant ownership of businesses, including:

• Private companies, divisions or subsidiaries of public or private companies.
• Public companies through recapitalizations or going private transactions.
• Significant blocks of stock from public or private companies seeking equity capital or persons seeking liquidity.

Balmoral structures each transaction, negotiates with the seller and its advisors and arranges the required financing. Acting as principal, Balmoral invests its own funds and those of institutional investors through investment partnerships, which it manages. Equity participants in these transactions normally include company management, employees (through an equity incentive plan), Balmoral and its investment partnerships.

Balmoral monitors the performance of its portfolio companies through frequent communication with management and regular analysis of monthly financial and operating results. The Firm is represented on the board of directors and usually has control through majority ownership. Balmoral typically does not get involved with day-to-day management of its portfolio companies, but does provide advice regarding certain financial matters, including the evaluation and implications of acquisition and divestiture opportunities, strategic and long-term planning, and potential refinancing options.

Balmoral is a long-term investor, typically retaining its equity ownership for over five years on average. Ownership values are realized by a number of different exit strategies, including:

• Public stock offering.
• Recapitalization.
• Sale back to the company.
• Sale to a financial buyer.
• Sale to a corporate buyer.

Joint Ventures

Balmoral has participated with both corporate and financial partners in making acquisitions. The Firm believes that joint ventures are appropriate for acquisitions when the special expertise of a strategic partner is needed or where a large amount of equity is required to finance the transaction.

Follow-On-Activity

Often, Balmoral has supported a buildup or platform strategy, sometimes by combining two or more entities in the initial investment transaction or by financing subsequent acquisitions. Since 1990, more than thirty of Balmoral’s portfolio companies have been engaged in significant follow-on investment activities; these were done in former Soviet Union and done by USA company. Since 2007 activities germinated form British Virgin Island with institutional investors which co underwrite $1.5 billion of additional capital if needed.
 

Investment Philosophy

The most important factors, which influence Balmoral’s decision to acquire a company, are the capability, integrity and depth of its management. We must believe in the people we do business with.  A key requirement is a management team that is excited about the company’s potential and eager to invest both effort and personal capital in its future. Therefore Rodney Kincaid or a staff visit each merger or investment candidate and do person due diligence anywhere in the world.

Balmoral provides for direct equity investment and performance based incentive plans for an extensive management group. Experience has demonstrated that broad management participation contributes much more to a successful transaction than limiting ownership to a small group of senior executives.

In addition to seeking high quality and proven management, Balmoral looks for companies having:

• Sufficient cash flow to service acquisition debt, as evidenced by stable and predictable operating earnings and cash flow in excess of capital expenditures and working capital requirements.
• A strong market position based on market share, relative cost position, proprietary products and value-added services, brand name strength, favorable distribution channels, sustainable franchises and undervalued assets.
• The potential for a significant increase in equity value achieved, for example, through earnings growth, repayment of debt, investment in capital equipment, and strategic acquisitions.

Balmoral has made investments in a wide range of different businesses and industries. The Firm’s philosophy is to encourage capital expenditures and strategic acquisitions by its portfolio companies in order to maintain and expand upon their strengths.

Balmoral’s portfolio companies have increased profitability by improving operating efficiencies and accelerating revenue growth. The Firm’s middlemarket portfolio companies have achieved this success by making strategic follow-on acquisitions of small and medium-sized companies in related businesses, investing in new products and services, reducing operating costs through efficiencies of scale and improving marketing techniques, distribution channels and product development. Often, portfolio companies require incremental equity capital either to finance follow-on acquisitions or to sustain high levels of internal growth.

The Firm generally will seek control oriented equity investments in companies led by strong management teams responsible for strategic growth and day-to-day company operations. Occasionally, Balmoral may take minority stakes in companies, typically in conjunction with board representation or other significant shareholders’ rights, or may join with other investors as a member of a control group.

The Firm has played the role of “White Knight” on several occasions and, as a matter of policy, does not engage in hostile acquisitions or substantial dismantling or liquidation of companies.

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