Target return*
Saybrook's Corporate Opportunity Fund targets a gross internal rate of return (IRR) of 20% to 30% and a multiple of cost of 2 times or better.
What we invest in
We invest in companies in the lower middle market throughout the US and Canada– those with an enterprise value of less than $500 million – well below the radar of our larger brethren who seek to make investments in excess of our target range of $15 million to $40 million. Our ideal company may have fallen on cyclically driven hard times or have been overleveraged by an imprudent owner. Management may have committed to unrealistic debt amortization, or been abandoned by an out-of-the-money sponsor or large conglomerate looking to exit a market. They may be a victim of a troubled acquisition or unrealistic capital spending. But in every case, they have fundamentally good people, products and/or services. They have a reason to exist, and with help can recapture their lustre We call these companies 'distressed' or ‘capital-constrained' , which roughly translated means they don't have adequate access to traditional forms of financing. They need a creative solution from an experienced investor who is not afraid to get their hands dirty. We acquire control and non-control stakes in these companies, always at an attractive discount to our view of their real value. Where other investors shy away, unable to discover these diamonds in the rough, fearing complexity of a restructuring, or intimidated by the daunting operational tasks ahead, we find opportunity.
Why there are opportunities
At some time or another, many lower middle market companies find it hard to access financing from traditional sources like banks. A sharp spike in raw material prices, or a cyclical decline in demand; a failed acquisition or an unanticipated regulatory change may be the catalyst. The collapse of 2008 and subsequent consolidation has left banks timid, particularly when borrowers fall short of projections. Many of those that invested prior to the collapse, hedge funds, collateralized loan obligations (CLO's) and others have eschewed this once frothy segment. And those that remain are often limited in the instruments they employ, the industries they navigate, or the challenges they are willing to take on.
Today's headlines talk of record setting demand for high yield debt and new availability for borrowers. But the lower middle market, what we call "home" is a different story. Tens of billions are coming due in the next few years and only the best smaller companies, those with consistent profitability and few operational challenges will attract new lenders. The rest will need to raise new equity or reorganize.
More often than not, non-traditional sources of finance are not there either: larger investors have moved on to bigger companies and opportunities, and many smaller investors lack the necessary restructuring or operating experience.
Saybrook can help these troubled companies. And because we have little competition, we can invest in them at attractive valuations.
*Targeted performance is not indicative of future results, and there can be no assurance that the target returns will be met.
Gross internal rate of return means an aggregate, compounded annually, rate of return that does not reflect the deduction of any management fees, carried interest, transaction fees, taxes or allocable expenses borne by investors, which in the aggregate may be substantial.