Overview

Transom Capital Group is a Southern California private equity firm focusing on buyouts and growth equity investments in small- and middle-market companies within the consumer, industrial, and media spaces. Its Principals have an exceptional track record of investing in and adding operational expertise to companies in these sectors gained at blue-chip firms such as McKinsey & Company, Platinum Equity, Microsoft Corporation, and Credit Suisse. This gives the team a strong cross-functional background in operations, strategy, marketing, and finance. The Principals have also built a distinctive reputation for working with top-tier management teams at both mid-sized firms and Fortune 500 companies to create top-line growth, improve operational efficiency, and enhance enterprise value.

Transom Capital differentiates itself from other private equity firms via its heavy operationally-focused model through which the Principals are deeply involved in the key operational decisions of their portfolio companies, particularly within the first 3-6 months post-acquisition. The Transom Capital team possesses deep, front-line experience in leading operations transformation programs across both middle-market companies and Fortune 500 corporations. The Principals have led successful change programs in all of the key disciplines required for operational success, including customer segmentation, product design, product lifecycle management, marketing and branding, manufacturing efficiency, purchasing and supply-chain management, and strategic repositioning.

 

Investment Process

The Principals apply a high degree of rigor at each step of the deal process to identify the presence of a substantial financial track record, significant management expertise, meaningful customer base, and proven product or service appeal. This due diligence process reduces risk, efficiently focuses efforts, and maximizes returns.

Transom Capital screens prospective investments by applying base metrics such as historical growth, current revenue and profitability, and industry and geographic focus. In addition, the team employs "softer criteria" such as fit with industry and sub-industry trends, opportunity for growth, competitive landscape, customer profile, supplier relationships, and strength of the management team. Transom Capital also leverages the expertise of its network of industry advisors as appropriate to probe more deeply on key areas.

During the due diligence process Transom Capital develops a detailed understanding of the prospective investment and the key business issues facing the company. The Principals supplement the traditional reliance on primary and secondary research with a substantial commitment of resources and energy to develop relationships with the management team and to spend time on-site at the target company, meeting with members of management and line-level employees and getting a better feel for the on-the-ground operations of the company. In parallel, the team performs "outside-in" analyses of the company and its industry such as market sizing and growth rate modeling, evaluation of the competitive landscape, and operational benchmarking. Due diligence also includes, but is not limited to:

• Analysis of historical and projected business performance and key metrics
• Review of core operations (e.g. manufacturing plant, product development process)
• Customer calls or meetings
• Supplier calls or meetings
• Audit of financial results and quality of earnings review
• Legal, tax and other subject matter specialty review

Transom Capital is a flexible partner that is able to provide the optimal transaction structure to meet the needs of a company and its shareholders, whether through a buyout, partial sale or growth equity investment. In addition, Transom Capital has the ability to move quickly through the transaction process and complete diligence in parallel with the negotiation of the transaction documents.

 

Investment Criteria

Transom Capital will consider the following criteria when analyzing a potential investment opportunity:

Company and Investment Size

• Small- and middle-market company with enterprise value between $10 million and $100 million
• Potential for equity investment of $5 million to $20 million
• Company with established core business and track record of acceptance of business model

Industry

• Fit with domain expertise and investment theses of the Transom Capital team
• Preference for consumer, media & entertainment, and industrial

Geography

• Southern California preferred, to better enable value-added operational model

Management

• Core of exceptional managers open to supplementation
• Shared operational vision amongst management and the Transom Capital team
• “Undermanaged” business

Operations

• Identifiable and solvable value-added operational efficiency improvement opportunities
• Appropriate balance of cost reduction and revenue growth opportunities
• Special attention is paid to companies that are approaching significant transitions (e.g. product lifecycles, value chain evolution, re-structuring) where the operational expertise of the Transom Capital team would add significant value

Attractive Risk/Reward Tradeoff

• Projected IRR in excess of 30% with risk level that complements existing portfolio
• Exceptional entry value, factoring in all relevant information, including financial modeling and industry comparable transactions

Ownership

• Relatively concentrated pre-transaction ownership base
• Shareholders looking for a liquidity opportunity

Control/Structure

• Potential for financial and/or operational control
• Preference for buyouts, but will consider minority investments

 

Operational Approach

At every portfolio company, Transom Capital expects to drive performance and create long-term value. In order to accomplish this, Transom Capital employs a hands-on operational model that creates EBITDA growth by both executing a top-line growth strategy and resolving key operational issues, which leads to margin expansion at all levels of the income statement.

As part of this model the Principals believe in building strong relationships and being active partners with management teams at Transom Capital’s portfolio companies, providing financial, strategic and operational assistance to help dramatically improve performance and position each portfolio company for long term success. This involves not just taking a seat on the Board of Directors of portfolio companies, but also spending time at the company working closely with management on the key issues that confront the business on a regular basis.

The Principals have developed a track record of trust and partnership with top executives at leading companies around the world. By committing to candor, integrity, collaborative development of winning strategies, and the alignment of economic incentives, the Principals replicate this track record with portfolio company executives, serving as trusted advisors whenever crucial decisions arise.

Typical issues that the Principals provide assistance with include:

• Developing and implementing strategies for overall corporate and business unit growth
• Creating and executing operational improvement programs to significantly improve cost base and margins
• Identifying and recruiting candidates, as necessary, for senior management positions and board seats
• Identifying and advising on strategic acquisitions or divestitures
• Identifying and recruiting co-investors or lenders to provide follow-on capital
• Negotiating an opportunistic exit event

The Principals believe that this operational partnership is a key differentiator and core component of Transom Capital’s success.

 

Exit

By coupling top line growth and improvements in operational efficiency, Transom Capital is able to achieve significant multiple expansions upon exit. Beyond this Transom Capital generates multiple expansion by understanding the fundamentals of the industries in which it is investing and therefore being able to accurately predict which industries will, in and of themselves, gain favor amongst investors during Transom Capital’s hold period, which will lead to increases in industry multiples between entry and exit.

In addition to this, Transom Capital will leverage its deep understanding of its portfolio companies’ operations to structure a liquidity event that creates the greatest value for its investors at the optimal time. The Principals will continually survey the marketplace for the exit opportunity that maximizes value and fits with the long-term strategy of the portfolio company. The Principals believe that ideal exit points arise naturally when investment partners are focused on driving sustainable growth and delivering upon operational improvements, enabling a patient and opportunistic approach to exit. Potential exit options for portfolio companies include public offerings, sales to financial buyers, and acquisitions by strategic buyers, in addition to partial liquidity events such as dividends and recapitalizations.

 

Contact Us

Our offices are located at 1801 Century Park East, Suite 520, Los Angeles, CA 90067 (at the intersection of Santa Monica Boulevard and Century Park East). We can be reached by phone at (310) 407-0929.