Private Investment Opportunities
With the Coronavirus, there’s a divide among businesses between those that are flourishing and many that are not.
The industries hardest hit by quarantines and travel bans were obvious: travel, transportation, and retail. The list of well-known companies that filed for bankruptcy is long.
The new social distancing-enforced economy has forced businesses to pivot or perish. Unemployment has been at record levels since the Great Depression. Those out of work or offered early retirement or buyouts also face a new world.
As I drive around, I’m seeing more “help wanted” signs but it seems not many are ready to go back to work – many anxious about the permanency of any potential new job given the uneasy state of the economy.
Locally, I’m hearing many boomer business owners saying it’s time to close up shop earlier than they had planned due to the disruption from COVID-19.
While many businesses have been disrupted with their owners closing their doors for good, I see buying opportunities.
Not all businesses that will be closing or offered up for sale are failing. With the onslaught of COVID-19, many owners have shifted priorities – choosing to spend their twilight years with family instead of toiling away at a business in flux.
What this all means is that many viable businesses are ideal acquisition candidates – not owner-operated but almost turn-key.
The stats show that over 80% of privately-held small businesses offer up for sale never get sold. That means there’s a glut of supply and all the businesses offered up for sale, a great many of them are undervalued and hold tremendous untapped value.
Christopher Snider, CEO of the Exit Planning Institute, recently had this to say about many of the private businesses currently for sale on the market:
“Many owners aren’t positioned well because they’re not maximizing the transferable value of the business and/or they’re not positioning it to transfer successfully so that they can harvest wealth locked in the business.”
To me, this means there are many businesses for sale that are undervalued.
For acquiring companies with processes, infrastructure, knowledge, skills, and staff in place, the opportunity exists to find undervalued targets among the thousands of private businesses for sale. This means tremendous value-add opportunities to acquire bargains that are already profitable and cash flow that can then be optimized and automated for passive income streams.
My investors and I look for these opportunities to acquire, optimize, and scale them to maximize cash flow then position them for resale. Sometimes, to add much more value we’ll acquire multiple companies in the same industry to take advantage of economies of scale to sell for greater margins down the road.
Does investing in private companies sound risky?
Not if you or the private investment fund you’re investing in knows what they’re doing.
It’s a fact that the most affluent investors are more heavily investing in private companies than Wall Street. It’s also a fact that these same affluent investors were hoarding cash in 2019 to go bargain shopping for cash flowing turn-key businesses in 2020.
They had no idea that COVID-19 was coming – only that a downturn was bound to happen.
Affluent investors have long ignored public equities in favor of private companies.
The benefits are many:
- Private companies are not trying to appease finicky investors on Wall Street, powerful board members, or talking heads on cable news. They have clear and concise goals and strategies for achieving those goals.
- Given long leashes due to the illiquid nature of private investments with long-term windows, the managers of these private companies are given the independence necessary to achieve theirs and their investors’ financial goals.
- Private investments in income-producing tangible assets like productive businesses, real estate, and agriculture have long proven to provide better risk-adjusted annual returns over time than the S&P 500. Moreover, these assets are backed by a hard asset with cash flow typically shielded from Wall Street volatility.
In a time of turmoil like what we’re living through now, illiquid tangible cash flowing assets shield investors from inflation and a loss of income, unlike their public counterparts.
COVID-19 has forced many businesses to pivot their operations and many workers to pivot their approach to labor in a whole new economy.
There is also a tremendous opportunity right now for investors to pivot away from Wall Street towards private investments.
Private investments have long shielded the affluent from economic downturns and transformations with consistent cash flow immune to volatility in the broader markets.
These investments aren’t for the wealthy anymore.
Isn’t it time for you to consider adding private investments to your investment mix?
Michael Foley, president and CEO of Humabilt Capital, oversees the entitlement process, funding, and operations for Humabuilt Capital. Mr. Foley has been a full-time real estate investor since 1995 during which time he has developed hundreds of single-family homes, townhomes, condominiums, and apartments. Mr. Foley started his investment ventures in Long Beach, California, and has expanded to Apex and Durham North Carolina. Mr. Foley is a graduate of the University of California at San Diego.