What makes for a good investment and how do you decide to proceed?

While each company situation is unique, we look for businesses that are well positioned within their market and have reasonable growth opportunies. If a company fits our investment criteria and ownership is committed to a transaction, we are prepared to provide feedback and move forward quickly.

How do you determine the value of a company?

Private companies are generally sold on a multiple of EBITDA for a cash free, debt free business. Multiples for companies with $500 thousand to $5 million of EBITDA tend to range from 4 to 6 times trailing EBITDA. Factors impacting multiples are:

• Company size and industry position
• Competitive dynamics of the industry sector
• Growth trends and opportunities
• Depth and caliber of management
• Diversity of customer base
• Capital expenditure and working capital dynamics
• Cash vs. non-cash consideration of transaction
• Stock purchase vs. asset purchase

How does Bel Air structure deals?

Each deal is tailored to the transaction and needs of the business. Most will include a combination of lower cost bank debt along with equity and subordinated debt, seller debt or occasionally earn-outs. We take a conservative approach towards capital structure to ensure adequate funding for growth initiatives and inevitable shortfalls.

How does a recapitalization differ from a sale transaction?

A recapitalization (recap) may be thought of as a partial sale. It is the simultaneous restructuring of a company’s capital structure and equity ownership, often facilitated by a private equity firm like Bel Air Growth Partners. Recaps are a great means for owner-managers to generate significant cash liquidity, ongoing ownership and retained operational control of their firm.

Why sell to a private equity firm?

It’s important for sellers to consider various buyer types. A strategic buyer may be able to offer the highest price, while the right private equity buyer will preserve a company's legacy and provide ownership opportunities and operating autonomy for management.

Aren't private equity firms short term investors?

This is where it's important to select the right private equity partner. Some funds are very short term oriented. At Bel Air, we believe that executing a strategy and a building a business takes many years. Our view is that good businesses are hard to find and should be held for the long term.

Who are Bel Air's investors?

Our investors consist of several high net worth individuals and ourselves. We have a significant amount of our personal net worth in these investments and a long term view. For certain situations, we may use one of the many institutional investors we know that seek to invest in our transactions.

What type of return does Bel Air look for on investments?

We generally target returns of 20% or more compounded over the life of an investment, generated through earnings growth and the prudent use of leverage. Our return targets are consistent with our historical results.

What factors besides price are important to consider?

It’s critical for a seller to choose a buyer they trust. The decision impacts:

• How, when and on what terms the transaction closes
• What happens to employees
• What happens to the business post-closing

How much equity can management expect to receive?

Historically, management has owned 10% - 45% of transactions through a combination of direct investment and granted equity options. Such factors as respective capital contributions, personal resources, transaction dynamics and post-closing financial performance play a role.

Does Bel Air need controlling ownership in a transaction?

No. The economics and dynamics of each deal will generally drive the ownership levels of each party to the transaction. A traditional buyout will probably require Bel Air to put up most of the capital, which itself would likely drive a majority ownership. A family succession transaction that has Bel Air helping to buy-out minority shareholders, may actually result in an increase in ownership levels for remaining shareholders and a minority for Bel Air.

What is a business owner’s typical role after a transaction?

Some business owners look to retire after selling their firms. Others just want some cash liquidity to feel more comfortable growing their companies, but have no intention of slowing down. We understand needs vary and consider all proposals from owners and managers for post-closing roles.

Does Bel Air require management continuity?

No. Management continuity is preferred, but not required. We've recruited numerous company leaders in previous transactions.

How involved does Bel Air get with managing a business?

As investors, our business is to invest in companies and help to facilitate their growth and development. We leave it to management to handle the day-to-day operations. Whatever the situation merits, we can:

• Partner with incumbent management teams
• Recruit leaders in the absence of leadership
• Serve on the board of directors
• Facilitate strategies such as add-on acquisitions

Do the companies in which Bel Air is invested work together?

In rare instances. While we attempt to share best practices amongst investee companies, we recognize that most managers want to run their own show.

Will the culture of the business change after a transaction?

The best performing businesses are ones with strong corporate cultures. We encourage fostering an environment of respect and opportunity to lay the groundwork for a strong corporate culture.

How will a transaction affect employee compensation?

Our transactions typically include market based salary along with equity ownership opportunities and bonus plans for key managers.

What happens if things don’t turn out as planned?

As seasoned private equity professionals we roll up our sleeves when challenges arise, but always defer to our key managers first. Our patient capital approach helps to foster an environment of collaborative problem solving. In some cases, we defer to our professional network of managerial resources to help address challenges.

How does Bel Air add value to companies?

Our role is one of marrying good businesses with the resources to achieve their potential. While many companies are already well run, we often find that our bias for growth enables us to focus a firm’s development.

How is Bel Air different from other private equity firms?

When it comes to lower middle market deals, we believe few firms can match our combination of experience, capabilities and track record. It's critical for a business owner to find the right fit, and we believe our blend of Midwestern style, meaningful personal investment in transactions and long-term horizon sets us apart.