7 Comments

Great analysis! Now, given that Advent International is indeed one of the largest and most experienced global private equity investors (growth equity vehicle), it is unlikely they are beting on the exit lever alone. Could it be that they are seeing something else?

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Aug 26, 2020Liked by Patrick

Do you know if they buy Shopify stores? That seems like it would mitigate the Amazon anti-3rd party seller risk

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Great analysis - hope to see you posting again soon.

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Excellent write up and very interesting. I would push back on a few bearish points/assumptions.

1- Not sure where heard PE underwrites to 25-30% IRRs. PE generally targets 20%, and that’s likely what Advent would be underwriting to.

2- Betting on a re-rating of a 3x mom and pop business once rolled up, professionalized, and at scale to 6-7x is not at all an audacious assumption. So right off the bat without any FCF generation, revenue growth, operating efficiency, or leverage you can underwrite it to a 15-17% IRR.

3- One of the things PE does well is optimize the balance sheet to make sure they are running as lean (read: CF generative) as possible. I would expect that a large at-scale PE-backed business can optimize WC needs via better inventory mgmt, squeezing terms out of vendors, and possibly arranging a WC facility. A little goes a long way here. If between those 3 levers they eliminated the cash drag from WC your 2% FCF yield gets to +20%. If they can only optimize a subset of that drag, say 25%, they still get to a 7% unlevered FCF yield, which is pretty damn good in an LBO.

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