KLH Capital Investment Criteria: A Closer Look

The private equity world regularly markets its investment criteria in summary form – bite-sized overviews that are easy to digest and reference.  In reality, the approach makes it difficult to differentiate one PE group from another.  So, as we look to work with you in 2016, here’s a closer look at our “real” criteria and the finer points that make a company an ideal fit for KLH Capital.

At a high level, KLH Capital seeks to make majority investments in U.S. businesses doing $10+ million in revenue and at least $2 million of EBITDA in the distribution, service and manufacturing industries.  On a more granular level, we look for companies with the following characteristics.

Good Companies at Good Values

We are seeking quality businesses with most or all of the following characteristics: a full management team, steady history of profitability and growth, diversified customer base, moderate to strong barriers to entry in their market, a differentiated service or product offering and a qualified accounting staff.  We mesh best with owners who have goals beyond merely achieving the highest possible valuation – entrepreneurs who are concerned with privacy, the legacy of their company, creating value and opportunity for key managers and employees, and finding a qualified, passionate partner who can help them take their business to the next level.

Small Company Gems

For us, a small company is one doing less than $3 million in EBITDA.  It stands out when it has a simple business model and tangible organic growth, diverse customer base and project pipeline, and a motivated operating partner, particularly one having past experience with a private equity partner.  We understand that many small companies have been financed by one or two founders who have committed their own wealth and “blood sweat and tears” in order for the business to succeed.  We enjoy lifting the burden of personal guarantees, improving the company’s financial resources and working with the management team to amplify the company’s potential.

Diamonds in the Rough

This is a company that has exceptional characteristics and future potential, but lacks the final touches that would make it truly stand out from the crowd.  Challenges like lack of accounting infrastructure, customer concentration, management concentration or an underdeveloped salesforce are common for capital constrained, growing businesses.  With a focus on the lower middle market, we have experience addressing these growth hurdles and seek to support quality management teams in their efforts to do so.

Our transactions allow entrepreneurs to diversify their risk, strengthen the company’s financial position and/or transition ownership to family members or key employees.  Most of our investments will be the first transaction the company will experience and we take pride in getting it right for all parties involved. The relationship we develop with management teams is critical to our investment strategy as we prepare to become partners with the new owners and support their goals to grow the company’s value further.

Now that you have the detailed version of our investment criteria, here is the summary version for your analyst to file in your database:

Investment Criteria:
  • Revenue: $10+ million
  • EBITDA: $2+ million
  • Add-ons: Any size
  • Location: U.S.
  • Distribution
  • Service
  • Manufacturing
Transaction Types:
  • Owner Recapitalizations
  • Family Successions
  • MBOs/MBIs
  • Growth Capital
  • Retirement Transitions
  • Corporate Divestitures