WHAT WE DO / INVESTMENT CRITERIA

What does a wonderful company look like?

To be a successful investor one needs to have a sound set of investment criteria and adhere to them. The search fund model’s success is partly explained by its adherence to some of the criteria familiar to value investors. Searchers that have done well have kept these in mind.

‘It’s far better to buy a wonderful company at a fair price than a fair company

at a wonderful price’

Berkshire Hathaway Shareholders Letter, 1989

Rarely will a company tick of all aspects of investors’ wish list.

 

Vonzeo Capital will work with searchers to analyze whether companies of interest meet the necessary conditions to be a 'wonderful' acquisition.

Industry Traits

 

  • Growing above average

  • History of profitability

  • Fragmented with lack of dominant players

  • Favorable in terms of Michael Porter’s 5 Forces

  • Acceptable risk level (e.g. cyclicality, operational risk, regulatory risk, technology risk, environmental risk)

 

Company Traits

 

1) High and predictable profitability
        -- Pricing power
        -- Controllable costs; avoid commodity inputs, inputs with large supplier power
        -- High asset utilization
2) Low capital intensity
        -- Low capital requirements per unit of sales growth
        -- Low working capital requirements per unit of sales growth
3) Growth opportunities
        -- Organic reinvestment opportunities in base business
        -- Related products and new geographies opportunities
        -- Tuck-in M&A opportunities
4) Moat - ability to defend profitability; e.g.:
        -- Brand
        -- Operational excellence
        -- Management acumen
        -- Location
        -- Unique know-how
        -- Proprietary process or product technology
        -- Corporate culture
5) Fair value
        -- Pay for present/past not future
        -- Capture additional value through improved OE
        -- Build margin of safety

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