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In the past few years, some searchers have decided to focus on specific industries, a choice influenced by the success observed in the US, where accelerators (Brydon, Halstatt & NextGen) favoring specialization significantly reduce the search phase. Furthermore, this focused approach allows for a deep understanding of the industry, fostering quicker and more informed decision-making, as Kareem J. Lyons, founder of Lyons Capital Partners, explained to us. In his case, he decided to concentrate his search on domiciliary care, care homes, or retirement home sectors in the UK. “My rationale for this specific focus stems from a blend of market demand and unique opportunities. Firstly, these sectors address the growing needs of an aging population, presenting a sustainable, growing, and resilient market. There is also a demand/supply imbalance where there is an increasing need for these services, and not enough service providers to meet the need. Secondly, the UK’s robust regulatory framework in healthcare ensures stability over the mid to long term and transparency. And last but certainly not least, it aligned with my goal for as efficient and short a search phase as possible,” he told us.
In the case of Jaime Rioja, Founder of Dangalena Capital, who has over 15 years of experience in fast-moving consumer goods and beverages, his choice fell on the creation of a group of wineries, combining several single appellation wineries into a group. He commented on us: “While the universe might seem small (+4K wineries), a focused search can be successful in untapping off-market opportunities. There is a compounding effect in the number of contacts you build within an industry. From a business perspective, wineries are very effective at generating cash despite working capital (inventory). The fit with the model is good, except maybe repetitive vs. recurring sales, but there are meaningful brands even at small revenue sizes. Add multiple expansion via buy and build, and the returns can be quite compelling”.
As for Joel Vicient, founder of Captio in 2009 (sold to Emburse in 2018), he was very clear when he launched his own SF, IziSoft Capital, last summer: he will target only a select set of companies in the software industry. “I have identified more than 30.000 software companies in Spain, and 10% of them meet my criteria. I’m particularly interested in two verticals: the Health and Tourism sectors, but will also look at horizontal software such as ERP, CRM, and document management”.
It’s clear that these experts dominate the sector in which they are seeking to acquire a company, and this fact provides a distinct competitive advantage over agnostic searchers. Among the advantages, their takeover of the company will be much quicker and more efficient due to their expertise. The only potential drawback could be that in some sectors, such as software, where multiples are higher, or in the wine industry where Capex can be significant, it might deter some “traditional” investors who prefer to stick to the conventional buy-in (low Capex, EV between 4x and 6x EBITDA, etc.). Additionally, due to the limited search, they may lack options.
