We are not a PE Firm, a business broker, or an investment bank
We have a good relationship with many business brokers and investment banks, but we are not in the business of brokering companies, we're in the business of buying them.
Private Equity Firms, or “PE Firms,” are organizations that go to wealthy individuals and ask them to all pool money into a fund. The firm then uses the money in the fund and huge amounts of debt to go out and purchase businesses. Some funds are multiple billions of dollars in size and have large teams of Wall Street bankers, analysts, and lawyers purchasing dozens of businesses a year. The fund holds a business just long enough to pay off the debt, then sells it so that the investors can cash out.
The individuals running the PE Firm are investing other people’s money and making a percent of the profit, giving them an incentive to ignore the risks and only look at the enormous payday they might get. In order to entice wealthy people to invest in their latest fund, the firm has to show that their past funds had very high returns. The way this is accomplished is by using more debt than banks will lend, requiring them to use mezzanine loans at many times the going interest rate (the private sector’s equivalent of “junk bonds”) from what are often referred to as “shadow banking” organizations. These funds buy many businesses at the same time because they know that the massive debt they load on top of each company creates a high likelihood that some of the businesses will go bankrupt, but the ones that survive will allow them to sell within three or four years at a profit that is so large that it makes up for the ones that go under.
The VonAllmen Capital Partners Difference
We are only interested in a company to purchase for ourselves. We keep all information completely confidential and share no information outside of our office, including even the fact that we’ve spoken with the business owner. Exclusivity contracts are only for a few months while both sides decide if the deal is right for them, after which if the business owner is not wanting to sell he is free to walk away and we return or destroy all information the business owner has provided us.
We are investing our own money, so the risks matter very much to us. We borrow very cautiously and moderately, never using mezzanine debt. We feel that the returns we get on our money by owning a business are very good, we are not interested in “flipping” a business to impress potential outside investors with outrageous returns. When we buy a business, we do so because we believe it is a business we will still be happy to own many years down the road.