Investing Beyond the Public Markets
Navigating the shift from business operations to business investment requires a keen understanding of market dynamics and opportunities. Chris Rolls , managing partner at PieLAB , offers a primer on the benefits of private market investing based on his two decades of experience and strategic learning from top institutions.
Key Takeaways:
Private Market Investment: A Sea of Opportunities
The landscape of investment has been experiencing a seismic shift over the last few decades, with traditional public markets shrinking while the number of private companies continues to boom. Chris Rolls emphasises this transformation by highlighting the stark contrast between the declining count of public companies and the burgeoning private sector.
More Target Opportunities
"The fact that private equity returns generally better than most other asset classes," Chris Rolls points out, encapsulates why private market investing is more lucrative. There are simply more businesses to invest in, with opportunities growing as public offerings dwindle. This abundance of choice is akin to having a wider selection of cars to take home — the more options you have, the higher the probability of finding a gem.
Better Purchasing Value
Private companies, according to Rolls, are generally cheaper to buy due to the liquidity premium of public companies. When exclaiming, “Private companies are generally cheaper,” Rolls highlights the financial prudence of private market investments. Without the inflated prices driven by public markets, investors are poised to capture greater upside potential.
The Insider Advantage: Informed Decision-Making
Moving beyond the breadth and cost of investments, Rolls suggests another key advantage of private markets is access to information, empowering an investor to make informed decisions that aren't feasible in public markets.
Quality of Information
Rolls distinguishes between public and private information accessibility by stating, "Private company investing allows you to make more informed decisions because you have access to better information." The due diligence process in private acquisitions offers a granular look at the company’s operations and potential, equating to a sophisticated strategy reduced to an illegal act of insider trading in public spheres.
The Serial Acquirers Model: A Less-Talked-About Success Story
Highlighting an alternative investing strategy that circumvents the cyclical buy-and-sell approach of traditional private equity, Chris Rolls delves into the concept of serial acquirers.
Introduction to Serial Acquirers
Drawing on the example of Constellation Software, Rolls illustrates how these entities, by strategically acquiring niche market leading businesses, generate outsized returns while retaining their portfolio companies for the long term. "They operate with less than two times EBITDA of debt," he points out, emphasising the prudent financial management that supports sustainable growth.
Potential for Long-term Compounding
Serial acquirers favor stability and cash generation over rapid growth, allowing them to "buy businesses that compound over the long term without having to deal with tax leakage," as Rolls details the tax efficiency inherent in these long-hold strategies. The holistic approach towards acquiring and nurturing businesses within this model offers a compelling alternative to the typical private equity path.
In an investment climate where public equities can no longer be relied upon for consistent, robust returns, Chris Rolls' advocacy for private market investment — especially through the lens of serial acquisition strategies — presents a potent narrative for the discerning investor. The value goes beyond fiscal gains, touching upon wider market effects surrounding decision intelligence and sustainable growth frameworks.
As private markets flourish, and savvy investors like Rolls continue to test and validate these unconventional approaches, the broader implications on investment strategies and the overall financial landscape will only become more pronounced. Whether through promoting higher returns, revealing the rewards of informed decision-making, or demonstrating the power of anti-fragile acquisition models, the private sector stands poised to redefine investing success in the 21st century.