04 Feb Solis Capital–A #PrivateEquity Group Interview
This is an interview with private equity group Solis Capital Partners. This interview represents the opinions of Solis Capital Partners only and is not indicative of the views of InvestmentBank.com or its affiliates.
Can you provide a history of your firm? Its founders?
Solis Capital Partners was founded by Dan Lubeck in July 2002. Dan was joined very shortly after Solis’ founding by Craig Dupper. Originally structured as an “independent sponsor,” Solis spent the succeeding seven years deploying approximately $50 million in five platform investments and three add-on acquisitions. In June 2010, Josh Harmsen joined Solis as Principal in anticipation of Solis raising a committed institutional fund, Solis II. Solis II has $61.1 million of commitments and had its initial closing in 2012. Jordan Simmonds, Associate, joined Solis in the late summer of 2015.
Tell us about your typical deal? Size? Industry? Geographic locale? Can you please provide an example?
Solis typically invests between $4 million and $20 million to acquire at least a 50% interest in established, successful companies with potential for significant value creation. Emphasis is placed on organic growth, with strategic acquisitions where accretive. Solis invests in a variety of industries, with a preference for the Western US geography and the business service, niche manufacturing, and software sectors. Example: Resolve Systems – Best-of-breed software solution for accelerated resolution of incidents for Network and IT Operations located in Irvine, CA.
How are your deals typically structured? Are you most often a majority investor or a minority investor? Do you prefer to keep existing management in place or do you simply take over the existing business with your own management?
Solis typically invests equity to acquire at least a 50% ownership interest. Our proprietary 50/50 partnering structure is a key differentiator that underscores our understanding of, and philosophical alignment with the factors driving successful entrepreneurs. We view our style of investing as “betting on leaders,” so we keep existing management in place, and augment where necessary.
What makes you different than other private equity firms? How does your differentiation make you a better buyer in a crowded market?
At Solis Capital Partners, lower middle market private equity investing is all we do. With over four decades of collective experience among the firm’s investment professionals, Solis consistently generates above-market returns through growth and improvement of its portfolio companies, with an emphasis on partnering with and supporting talented, proven leaders.
Consistent Success Driven by Specialization and Repeatable Processes
- Relationship driven SOURCING results in proprietary and targeted opportunities – during the last 12 months, 44 pre-qualified opportunities were added to the deal log with more than half proprietary
- HIGH DOWNSIDE PROTECTION due to valuation discipline and structuring
- INVESTMENT PROCESSES and firm CULTURE specifically tailored to the unique needs of the
- SEASONED PROFESSIONALS with four decades of collective lower middle-market experience and success
- Active SUPPORT AND RESOURCES provided by Solis for growth and improvement
- Team with long TRACK RECORD of generating consistent investment returns
Solis is the best alternative for business owners looking for a true partner for growth.
What do you look for when you are courting target companies? What separates a good company from a great company? What are mistakes you have seen from targets that, if remedied, could make the process smoother for all involved?
Solis’ objective investment criteria include preferred industry (business services, niche manufacturing, software), EBITDA greater than $1.5 million and growing, three-year history of positive cash flow, minimum $300 million domestic addressable market, fragmented and growing industry, non-cyclical, and not subject to technological obsolescence. Key subjective criteria in order of importance include leadership, growth and improvement potential, solution-driven dynamic motivating the transaction, and appropriate valuation.
Leadership is the key separator of a good company from a great company. Solis’ evaluation of leadership including experience, talents, philosophy and objectives is the single most determinative factor in a smooth process and favorable investment outcome.
What added value do you bring to the process? How can you further assist sellers in preparing them to be ready for exit?
Solis’ investment processes and firm culture are specifically tailored to the unique needs of the lower middle-market. As growth and enhancement investors, we support portfolio company leaders in executing a mutually agreed upon strategic plan. In addition to capital, we provide additional human resources, industry contacts, and process guidance that all contribute to increased value when the time comes to pursue an ultimate exit.
What is your typical investment horizon? How does your mission and goals for the fund impact your investment decisions and how you treat sellers’ businesses both short and long term?
Solis’ investment horizon is four to six years, but by no means “hard and fast.” Our philosophical belief that if you support management in doing what is best for the business long-term, value will be created and there will be ample exit opportunities.
Tell us about your buy-side process including the time it typically takes from initial engagement, through indication of interest, due diligence and through final close.
Given the extensive experience of Solis’ professionals, our buy-side transaction process is smooth and as non-disruptive as possible. Since we spend significant time with management up-front, our due diligence process is confirmatory rather than exploratory. Over the years, we have developed proprietary tools that both manage expectations and minimize the risk of non-closure.
Tell us something interesting about your fund, its founders or managers that is typically not widespread knowledge.
Consistent with its’ partnering focus, Solis was the first lower middle-market PE Firm, that we know of, to execute a true 50/50 transaction structure with an entrepreneurial founder. This unique structure bridges the gap between control and non-control alternatives for businesses seeking liquidity and growth capital.