You're right. And this is you're hearing the characteristic of my oil and gas background where 50 percent is a lot. And you're in that industry. So that's what's coming out there.
Acquiring Minds
A Searcher’s Second Act: Building a $25m Holdco
Excerpts · 385 segments · ~1:36:15 long
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But no, we certainly, we think of leverage as a good tool. And the nature of the businesses we're looking at with recurring revenue streams, we feel comfortable kind of pushing heavy leverage into these businesses.
And say a little bit, Eric, about the pitch to LPs when you invite them to participate in a deal. And specifically with the attention to the long-term hold here. As ourselves at Minds Capital Investors and independent sponsor deals, we need to see a path to a liquidity event because of our own LPs.
And so while I personally have an affinity for the long-term hold and like that, I now appreciate that that... isn't always viable when you're raising money from others who need to know, your investors need to know when they're going to see their money plus return back. It can't just be, well, maybe it can, but it's a rarer investor who's willing to go along on some indefinite ride. How do you…
So we, you know, we do... screen, if you will, the investors that we choose to work with based on them being comfortable with the long, with the long holding period. You know, when the actual question comes up of, you know, well, what if the business grows quickly and we get a really good, you know, offer on it, would you sell?
Like, you know, I can't say no, we would not because, you know, I don't want to be misleading, right? The right opportunity lined up, we would consider an exit. Yeah. But what we try to sell is we try to note is that we're going to buy and make decisions for the long term.
So a good example of that, like one of our businesses, we bought the real estate because we needed, you know, to really hone in on our manufacturing plant being in one place. So you wouldn't normally buy the real estate if you're a short term holder. Right. Yeah. And so we continue to make decisions like that, which are we're going to operate as if we're a long term holder.
And if stars aligned to where something comes up that's economically rational to sell, we would consider that. But from an investor standpoint, they need to be signed up for the long term. And if I had a partner that said I really do need to get out, we would work on a pre-established structure for how to buy them out at a rate of return and kind of in a fair way.
Right. To make sure that we keep up. keep everyone that's working with us treated fairly.
But the pro forma that you would show a prospective LP on a given deal shows a particular IRR or MOIC based on a hypothetical exit? Or is it just dividends that are coming out? Like what are the numbers that you show them in terms of what their return will be?
Sure. So we will generally show, you know, a return based on like a I think a seven-year kind of hold because, you know, you need something to be able to do that. But most of these businesses are going to be...
dividend base once we pay off the debt. So we think that's really attractive to show like, you know, the way we levered this, we can be aggressively paying off the debt and then have dividends that pay out over a long period of time. However, just, you know, to have the right conversation, we have to be able to show different exit scenarios.
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