Investment Criteria
Newcastle invests in the consolidation of entrepreneurial financial services businesses which are leaders in their niches with a history of strong growth, defensible margins and trailing EBITDA of $0.2 to $3.0 million. Our initial early stage investment funds the consolidation’s entire incubation process from inception through the merger closing event. During the incubation process, NCC funds formation of a Portfolio Company that becomes a holding company at consolidation with each entrepreneurial business becoming a wholly-owned subsidiary.
The consolidation is structured as a heavily loaded stock exchange – each entrepreneurial business receiving stock in the Portfolio Company in exchange for 100% of the stock in the entrepreneurial business. Sometimes the Portfolio Company, using Newcastle’s fund capital and/or co-investment partner LBO funds, purchases up to 30% of entrepreneurial businesses’ stock for cash with the balance of the roll-up transaction for stock and debt financing.
Post consolidation, NCC with co-investment partners provides the Portfolio Company with later stage growth capital. Our objective is to position the consolidated Portfolio Company for integration, infrastructure development, accelerated growth and expansion to create a higher value at liquidity.
What We Look for in a Small Business Candidate for Consolidation
We invest in well-managed, small businesses that are strategically positioned to maintain their status as regional industry leaders and take market share from competitors. Companies that meet our general consolidation and investment criteria possess the following attributes:
Business Characteristics
- Regional industry leaders
- Proven track record of success
- Superior growth prospects
- Excellent industry reputation
- Aligned product lines
Management Characteristics
- Growth focused
- Exceptional, hands-on CEO/President
- Management depth or suitable transition replacement beyond the CEO/President
- Desire to utilize the resources of a financial partner
- Desire to remain active, and committed over the long-term to create higher exit returns
Financial Characteristics
- Company revenue – $1 million to $10 million
- Company EBITDA – $0.2 million to $3.0 million
- Stable gross margins
- Steady revenue growth
Consolidation Characteristics
- Post-consolidation revenues >$35M
- Post-consolidation EBITDA >$6M