Investments We Make
At Permanent Equity, we believe the why is just as important as the what. This goes for businesses and people. Not all businesses or motivations for a transaction are created equal. And often, we’re not a great fit.
Our deals aren’t zero sum, but instead positive sum. We want to get involved with families and businesses where we enjoy spending time together in an effort to win together. And we typically do this in three ways:
Legacy Buyouts: We buy 60% to 100% ownership from retiring principals wanting to maintain their company’s independence and reputation. The retirement could be immediate, or over 5 years. We’re flexible.
Growth Partnerships: We buy 55% to 80% from principals who want to take some chips off the table, remain with the business long-term, and add some expertise.
Management Partnerships: We work with operators who want to continue growing autonomously, while exiting the retiring or absentee owners.
There are many more situations where capital could be useful, and where we’re not likely the right fit. Let’s dive into where we’ve found win-win success.
LEGACY BUYOUT
In a legacy buyout, Permanent Equity is buying all or a large amount of the equity in a company with both parties optimizing for a drama-free transition that allows the seller to take steps back. Most often a buyout will occur when the ownership is ready to retire within 18 to 48 months. Our legacy buyout structure has three distinct hallmarks: an intent to hold-long-term, no outside capital, usually including zero debt, and an aim to uphold the legacy established under previous ownership.
An intent to hold long-term is the defining tenet of Permanent Equity, as reflected in our name and fund structure. A retiring owner, especially if they are the founder or a multi-decade owner, often appreciates the concept of initiating one transaction without setting up the company for many successive transactions. Under a traditional private equity fund, the company will likely be sold every 3 to 5 years going forward and/or ultimately absorbed and integrated by a strategically-oriented corporation. At Permanent Equity, our initial investment is designed to last as long as a generation of operators would (27 years), and can potentially extend even longer.
In a traditional buyout, the selling owner will not often have an equity interest in the company post-close. The transaction structure, including its debt and equity providers, determines whose interests will govern the company’s operations. Many buyers will use a combination of debt and equity, with debt often originating from a bank or other type of financial institution with governing covenants. To fund the full offer, firms may also take on co-investors.
At Permanent Equity, we exclusively use our own funds. This structure increases the size of investment relative to our peers, but also provides autonomy to govern the business based exclusively on what’s best for the firm long-term, rather than short-term bank covenants or differently-minded equity investors.
The capital approach also exemplifies the overall theme of a legacy buyout: do no harm. Permanent Equity is investing in a company that has not historically operated with much debt, if any. In fact, we’ve quite literally never seen a long-operated family business with heavy debt, and for obvious reasons. Businesses with lots of debt are inherently fragile and often don’t survive. Our overall objective is to change as little as possible in the transaction itself, and that includes the balance sheet.
Upholding a legacy is about more than just capital. It extends into how the team transitions, how customers feel about and interact with the brand, and ultimately what the company prioritizes. A legacy buyout means no meaningful changes in name or identity, and few in operations.
A company invested in as a legacy buyout should already be great at what they do and know who they are, so Permanent Equity’s role is to be a stellar support system and to help release capacity constraints.
In Permanent Equity’s portfolio, Pacific Air Industries and Air-Cert are prime examples of a legacy buyout. The sister companies were owned by the founding family for six decades. After the founder’s passing, his widow carried forth operations with the team for over a decade. They were averse to typical private equity interest and waited for a situation in which they had faith the legacy would be upheld.
Watch more about the Pac Air story below:
GROWTH-ORIENTED PARTNERSHIP
Oftentimes when we meet a prospective seller, they are not yet ready to retire and are excited about the future. Inbound interest, liquidity, growth-oriented reinvestment needs, and long-term succession planning are driving transaction conversations. Advisors may have told an owner to defer to the buyer on whether they should be involved post-close, but to us, an owner who wants to roll forward is a highly positive signal. Remember, the seller is always in a far superior position of knowledge to the buyer.
When Permanent Equity invests, we want both parties to feel like active owners. This means that decisions on pace of growth, types of growth (organic and/or acquisitive), reinvestment, and distributions are made collaboratively. Success is not measured on driving increased profitability as quickly as possible, because the best improvements may take more time and offer less expensive tradeoffs (e.g. ruining culture and losing people). As long-term owners we think like long-term owners and want our co-owners to think long-term with us.
We do not need to be loud about our investment, and, outside of our investors, we don’t need to publicly say much about it at all. Just like a legacy buyout, few noteworthy changes should be implemented as part of the transaction for clients, suppliers, or the team. For most, it should be business as usual -- but the operators will no longer be on an island.
And we’re investing because of the vision of the operators. We want to understand goals and current capacity constraints. We spend a lot of time as a team talking about what should be built organically and what should be bought or acquired. Operators take the lead on how aggressively to pace reinvestment and growth. To that end, one of our favorite topics of exploration is what could be invested in now that won’t pay off for 5 or more years, but will be meaningful when it does. We’re optimizing for slow and sturdy success.
With aligned incentives and without debt to preemptively eat up cash flow, as partners, we ultimately share in prosperity together.
More than half of our investments are structured as partnerships.
MANAGEMENT PARTNERSHIP
Management partnership is a version of a growth-oriented partnership in which the people we partner with are not the existing majority owner. This most commonly occurs when the ownership has already retired, and the operators, who may have no or little equity, lead the operations and vision of the company.
In a management partnership, we work with the operators to determine how best to structure discussions and a transaction that is a win-win-win for the owners, operators, and the company, while adhering to the traits of any investment we make.
TRAITS OF EACH INVESTMENT
“DO NO HARM” APPROACH
We partner with successful businesses that have a history of consistently making money. Having built and run businesses ourselves, we know what an impressive and rare accomplishment this is, and we appreciate that even small, seemingly harmless changes can derail a company’s path. Once we’re partnered with an organization, our approach is one of respect and care for the business as it currently exists. The processes, people, and culture that are in place are there for a reason. Assuming that we know better without digging in to understand the “why” is prideful and extremely dangerous. “Do No Harm” is our primary operating mantra. Put more eloquently, “If it ain’t broke, don’t fix it.”
NO PRESCRIBED PLAN
Have you heard of a 100-day plan? Most buyers have a plan for what needs to be changed, and quickly, with most of the changes occurring in the first 100 days. We don’t have a playbook – none, zero. Every company we’ve had the pleasure of meeting is dramatically different from the next, so the primary play in our playbook is to listen and learn. The owners and operators of a business know substantially more about their organization than we ever will, so the best action we can take is to absorb as much information as we can. Once we understand enough to be good partners, we’ll begin to bring ideas from our prior experience to the table that we think might be helpful.
NO ASSHOLES
We all have occasional bad days. And for those days, grace is given and expected in return. But life is too short and complicated to work with those set on short-term, zero-sum, self-serving gain. We want our partners to serve and enjoy their teammates and take pride in their work. So, while we have grace, we have little tolerance for bad behavior, and we hold ourselves to the same standard. We try our best to do what we say we are going to do, when we say we’re going to do it, and to treat others the way we would like to be treated.
With us, what you see is what you get. We want to be us. We don’t play games, or dress up to play a part in a drama. We like to be comfortable and want you to be comfortable too. Being comfortable is being you.
NO EXTERNAL DEBT
While most of our “competition” uses debt to fund deals and improve their return profile, we don’t like debt and rarely use it. So why put ourselves at such a distinct disadvantage, at least when it comes to fundraising? We’ve built and operated enough small- to mid-sized businesses to know the importance of staying flexible. Not having a large debt payment during times of turbulence means the flexibility to keep a long-time employee on the payroll that you might otherwise be forced to let go, or to hire great talent in the midst of an industry-wide downturn when others don’t have the resources. And in boom times, we find it’s much more fun to enjoy distributions than to send them to the bank
PERMANENT HOLD
Owners we partner with didn’t start with an end in mind. They saw an opportunity in the market, rolled up their sleeves, and brought their best every day for decades.
This is how Permanent Equity invests. We believe operating without a timeline drives fundamentally different behavior. Short-term ownership brings short-term thinking. Long-term owners avoid mortgaging their future for short-term gains, are selective about who they do business with, will forego risky revenue now to protect the company’s reputation, have no interest in creative accounting, and deeply value building relationships with their customers, suppliers, and employees. This is the Permanent mindset.
ARE WE A MATCH?
Capital is a commodity, but people always come attached. People add both complexity and value. If an operator just wants to walk away with the largest check possible, there are plenty of buyers. What’s best for the founder? What’s best for the team? What’s best for the customers? What’s best for the brand’s future?
Our experience is that once you mix in all the stakeholders, priorities become clear. And when the priorities are to keep a good thing going strong for decades to come, Permanent Equity offers a compelling approach.
Ready to start a conversation? We’d love to connect.
