Investment Strategy and Criteria
Our strategy is “growth buyout” which achieve the sustainable growth of revenue and earnings of the portfolio company.
As the companies have strong value proposition are able to achieve sustainable growth, our investment criteria is “whether the company has character and/or business which can strengthen companies’ value proposition”.
Small-end companies have great potential to realize value through strategic redirection and improvement of operational system.
Investment Strategy
“Growth Buyout”
Realize portfolio companies’ sustainable growth
in revenue and profit
Produce companies with Value Proposition (strength to create distinguished value)
Investment Criteria
|
Business Model Business Category Corporate Culture |
Characteristic | Examples |
|---|---|---|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Focus on Small-End of Small-cap (EV: 2-6 billion yen) in Japan
Investment Cycle of Phronesis Growth Buyout
We will discover and select SMEs with business potential through our various source of information, develop appropriate investment scheme, and support the redirection of business strategy and operation of business. We will achieve outstanding investment return through the cycle which realizes the best exit through the growth of portfolio companies.
Deal Sourcing
- Types of deals:
Succession, Financial restructuring, Carve-out - Sourcing:
Proactive approach to candidate companies and those stakeholders
Introduction from financial institutions, M&A advisories, consulting firms, tax/accounting advisors
Deep network by founding partners - Find companies with potential strength in value proposition factors
Investment Scheme
- Equity related investments with control of management and exit
- More than 1/3 ownership with ratchet clause to have majority stake
- Appropriate leverage to achieve long term growth of portfolios
- Utilize redeemable preference shares to accelerate exit timing as well as to leverage common shares to assure exit events
- Support capital increase/restructuring balance sheet of companies with excessive debt
Value-up
- “Strategic Redirection” Thorough due diligence, building mid-term business plan and scenario analysis, etc.
- “Operational Improvement” Review the current status and implement the improvement plan
- “Managerial Resource” Assign managers from management pool
- “Supply of Growth Capital” Budget R&D expenses, additional investment for add on acquisitions
Exits
- Early / partial redemption by recap
- Evaluate various exits and select the most appropriate one for LPs:
- rade Sales
- MBO/Secondary buyouts with financial investor
- IPOs
Value-up Strategy
Our value up strategy is based on ①Strategic Redirection and ② Operational Improvement realized by ③Assignment of Managerial Resource and ④ Supply of Growth Capital.
Strategy Building / Implementation
DD Phase
“Strategic Redirection”
- Analyze existing market
- Review potential market, new channels, international expansion, etc.
- Review and confirm value propositions and challenges among competitors
- Redefine business opportunities in value chain and business domain
- Consider new products and services
- Consider add-on acquisition strategy
- Redefine mission and vision
- Develop long-mid term business plan
Post Investment Phase
“Operational Improvement”
- Reconfirm investment hypotheses
- Verify decision making processes
- Review consistency of organization and personnel system to implement strategy
- Review supply chain, manufacturing process, marketing, sales, personnel, IT system, etc.
Strategic Support
“Assignment of Managerial Resource”
- Many small-cap companies lack for human resources in management level
- Aging of business owners will result in retirement and succession issues
- Assure the implementation to realize investment values by assigning management level human resources
“Supply of Growth Capital”
- In order to realize the potential of portfolio companies, anticipatory investment such as R&D, Capex, upfront cost to strength sales and human resources would be needed
- Implement most appropriate financial planning to budget enough resources to achieve growth
- Further investment in case of add-on acquisitions