Alex Mears

Private Equity, Small Business Acquisition, Search Funds, ETA; Combat & Large Cap PE Veteran Co-Founder || Managing Partner - The Brydon Group

[Steve Ressler @steveressler]

If you are a mid-career CXO, GM, consultant, IB, PE leader who is interested in search, I encourage you to check out our next Brydon Info Session (link in thread) this Friday 12-1pm ET. I've been less public lately but lots of awesomeness going on behind scenes - join the fun.

[Alex Mears @LeveredKnowledg]

@SMB_Attorney @Agency_CFO More than happy to jump on a call and help if I can. Spent 19 years on the dark side…

[Steve Ressler @steveressler]

We are hiring a paid 6-month MBA fellow at The Brydon Group. Great opportunity for folks interested in ETA and/or PE with evaluating deals, conducting diligence, & working on sourcing https://t.co/4CQWcWbpBy

[Steve Ressler @steveressler]

Pack your bags. Last call.

Our EIR application closes this Wed June 15th. If you’re interested in search, acquiring a small business and becoming a CEO, submit your application by this Wednesday! (Actual photo from the beach bar near our EIR cohort training site in Puerto Rico).

[Alex Mears @LeveredKnowledg]

@RandBusiness @RegZeller @WilsonCompanies @Sam_Rosati Typically would structure retention bonuses that are phased / get paid out over time (e.g. at 6 mos, 1 year, 2 years).

[Alex Mears @LeveredKnowledg]

@LeticiaCdeAlbu1 In Private Equity, we look at both, but care much more about ROIC ex-Goodwill

This is because we generally "control" M&A going forward, so don't *necessarily* care if mgmt grossly overpaid for an acquisition years ago...

[Alex Mears @LeveredKnowledg]

1. Investors quickly learn to look for businesses with high Returns on Invested Capital (ROIC)

Despite knowing that for 20+ yrs, I'm always shocked at how much small differences in ROIC impact the value of a business

Curious how to value a high ROIC business?

[Alex Mears @LeveredKnowledg]

@LeticiaCdeAlbu1 ROIC w/ Goodwill incorporates element of efficiency of mgmt's historical M&A (b/c includes how much mgmt paid for acquisitions in past)

ROIC w/o Goodwill is a more "pure" measure of operating performance of biz

[Alex Mears @LeveredKnowledg]

@LeticiaCdeAlbu1 Definitely include these in invested cap if they are operating assets (e.g. capitalized software dev costs)

For Goodwill, best to look at ROIC both w/ and w/o Goodwill (they measure 2 different things)

[Alex Mears @LeveredKnowledg]

@dk_bergen @ecommerceshares Derek, agree 100%. Koller has a good chapter on this too (plus how to think about Goodwill).

Always tough to express much nuance & complexity in 280 characters ;)

[Alex Mears @LeveredKnowledg]

@VforValuation O’Reillys is a great example of ability to continue reinvesting at very high incremental returns (& disciplined operating/capital decisions)

Retail (despite its many challenges) can (or did) often have long runway for reinvestment if store unit economics were great

[Alex Mears @LeveredKnowledg]

@ecommerceshares Yeah, we’re saying the same thing

[Alex Mears @LeveredKnowledg]

@ecommerceshares I typically have looked at ROIC both w/ and w/out Goodwill. Excluding Goodwill ROIC gives you a better/ more pure view of the operating returns of the biz.

Including Goodwill gives you a sense as well for returns on historical M&A & mgmt’s ability there

[Alex Mears @LeveredKnowledg]

@ecommerceshares Thanks- agree, absolutely would include Cap’ed Software in my definition of Operating Assets if I’m looking at ROIC at a software business.

Intentionally left off “Intangibles” more broadly though to avoid confusion on including assets like Goodwill (& Tweet size constraints :)

[Alex Mears @LeveredKnowledg]

@jayvasdigital @steveressler Jay, this is a great article - thanks for sharing! Love the part on incentives (the dreaded “institutional imperative”) to reinvest in a business regardless of the incremental returns…

[Alex Mears @LeveredKnowledg]

15. Really want to go down the rabbit hole? I’d recommend Koller’s book “Valuation: Measuring and Managing the Value of Companies”

It was my bible when I started in banking 20 years ago & is still a great reference

(Penman’s “Accounting for Value” is also an underrated read)

[Alex Mears @LeveredKnowledg]

14. Where Invested Capital is all the Short-Term & Long-Term Operating Assets less the Operating Liabilities required to run the business

i.e.

Invested Capital = Net Working Capital (NWC) plus Net Property Plant & Equipment (PPE)