Investor-Backed Search Fund Second Summit Wants To Acquire A Security Integrator
"Search funds" (see this NY Times report) are a growing investment trend where young executives try to acquire companies.
One fund contacted IPVM, asking if we were interested in being acquired. We are not, but we were interested in learning why they wanted to buy a security industry company.
IPVM spoke with Second Summit Partners' Managing Partner Cody Adelizzi to learn more about what the fund is looking for and its plans for the target business.
Executive *******
*** ********-****** ****** **** ****** ****** Partners **** **** ** ** ******* and ******* ** **** ** *********** in ******** ******** ** **** **** two *****. ** ******* ***********, ********** those **** *****/***** ********** ********** **** generate ********* *******.
****** ***** **************, *** **** ******* any ********* **** ** ***** $*.* million ** ****** ** $* ******* in ******* (**-*** *********) *** ** more **** $* ******* ** ****** based ** ****** ********* ** ****. We **** ** ** * ******-**** range *** ******** ***********, **** * fair ****** ** *********** *** ********* these ********* **** ****-***********.
***** *** **** ***** *** ******* on *** ****** ***** *** ****** multiple **** *** ** ***, **** will ****** ** * *** ******. Integrators ******* **** ********* ******* *** find */* ********** ** *** ***-****** digits ** ** *********. *******, ************-***** businesses ** ****** ****** *******, **** as ****** ***** **********, *** ****** P/E ********** ** *** ***** ** higher.
***** ********* *** *******, *** ****'**** ******** ********, **** *************** *******, ***** ****** **** ** *** CEO *** *** *********. **** *** to "****** ** ******" *** ******** in **** *****, *********** * **.*%-**.*% CAGR. ***** ****, *** *******'* ******** exit **** ***** ** ******* *** business ** * "****** ******* ** itself," **** * ******* ****** ****.
Search **** ****** ****** ******** **********
****** ****** ******** ** * ****** fund **** ** ********* **** ******* private ******** *** ******* ******* ** that ** ******** ** *********-****** ********** professional ******** *** *** ******* ** acquire *** ******** ** * *******, step ** ** **********, *** **** and **** *** ******* ***** **** are ***** ** ****, ***** ***** be *-** *****, ******** ****** **** typical ******* ****** **** ****. *** company ********** ** **** ** **:
****** ****** ** * ****, *** we'veraised ******* **** * ***** ** investors ** ** *** ******* *** company **** **** *** ********** ****** and ********* ******* ** **** **'** looking ***. *** **** ** ** purchase *** *******, **** ** ** operators, **** *** ******* *** ***** ten *****, *** **** ********** **** some ******* **** **** ****. **'* a *********** **** ** ******* ******. If *** ****** ****** ****, ****'* what ** ***, * *********** ****** fund.
****** ****** *** *** *** ******** Partners, **** ******** *** **** *******. Adelizzi ******** ** *** ******** ********** and *** ** *********** ** ***** and ** *** "******* ******" *** is ****** ** ****** *** *** role **** **** ************ ******** *** target:
** ********** ** ********* ** ********. So ************, **** *** ****** ******** cloud-based ********* ** ******** **** ***** different ***** ** *******, ******* **'* wealth ********** *** *******, ************ *********, most ******** ** * ******* ** Chicago **** ****** **** * ****** company ********** ** **** *** *******. Before ****, * ****** ** **********, consulting, *** ******* *******.
** ********** *** ** ********* ********. I'm * ******* ****** *** **** of **** ** **** **** *****.
******** ******* ********** *** ******* **** Pearson, ***** ********** ** **** ** finance *** ** ****** ** ****** the *** ** *** *******:
** ******* *** ******** * ******* out ** ******* ** * ********** company **** ****** **********. **** ***** rendering ******** *** **** ******** ******** associated **** **. **** ***** ********** on *** ** *** ******** ******** channel. ** **** **** ** ** have * **-****-**** ****** ** ******* before ******* ** ** **** ****. My ******* ** **** ** * traditional ***.
******** **** **** **** **** ** their ********* "*********** **** ***** ** this ***** *** ********* *** *********."
Choosing *** ******** ******** ******* ** ** * "*******-******** ****"
****** ****** ***** ** ****** *** physical ******** ********, ***** ** ****** "security *********" ** *** ********** ******, because *** ** *** ********* ******* has * ********** ********** ******* ** the ********, ****. ***** ******* *** the ******** ******** ** ***** *** are **** *** ******** ** ****** and ** * "*******-******** ****" *** that ******** *********** **** * ********* revenue ******** *****:
***** *** ***** * *** **** in ***** ** **** ********** *** develop ****** *** ******** **** ** them. *** ***** ** ******* ** peers, ******* ******** *** ** *** main ********* ******* ******. ** *** looking **, ***** ** ********** ** itself. ** **** [**] ******. **'* EyeQ.
** **** ********** **** ** **** at **** **********, ********, *** ********* within ****. **** *** ***** *** primarily ******* ** *** ********* *******, at ***** ** * *** ** the ********* ***** ** ******. *** tangibility ** * ***** ***** ***********. There's * **** **** ** *** scorecard ****** "**********," *** * ****** that **, "*** *** ******* ** dinner *** *** ******** ***** *****? Can ****** **** ***** ***** ****** the ***** ** **? *** **** it ***** * ******* ****, **** a *******-******** **** **** ***'* **** and ** **** ********** ** ******* or ********?"
** *** ** *** ***** ********** thesis, ******** ********* *** ************* ** riding *** **** ***** ****** ******** security *** *** *** ********** ** this ***** ***** ***** ** ****:
** ***** **** ** *** **********, and ***** ** ** *********** **** all *** ********* ** ****; *** those ****** *** ******** **** ******** in *** *****.
******* **'* ************ **** *** ****** IP ** *********, ** **** ***** this ***** ** ************ ***********, ******* personal ********* *** *** ***********. ** think *** ***** *** *** ********** trends **** ***** ** **, ***** why **'** ******* ** **.
*** ***** ******* ****** ****** ***** with ** *** ***** *** * small, *********** *********** ****** ******* ********. While *** ***** ** * ******, Adelizzi **** *** ******** ***** "*** well":
**'** **** * *** *****; *** very ***** **** ** *** *** with * ******* [** ***] **** Coast **** *** ****** ******* *** multifamily *********** ******** **********. [**** ***] software ********** **** ********. ** ******* that *** ***** **********. ** *** a ****** *** ***** *** **, but *** *********** ** ***** ****** hardware *** *** **** **** **** building **** ***** ********; ** **** really *** ****.
Target ***************: **** **********
******* *** ****** ******* ******** ****** Summit ***** *** ****, ******** **** IPVM **** **** **********, * ****** video ********** ******* **** **** ******* the ****** **** *********** ***** *** is **** * ********* ** ****** Summit's ************ ***** ***, ***** ** *** ***** ********* of *** ****/**** ** *** ******* the **** ** ******* ***:
**** ********** ** *** **** ** business ** ****** ****. ** ****, my ********* ******** ** ** ** a ******** ****.
**** **********'* ******* ***, ****** *****, brought ** *** ********* *** **** over *** ******* ** ********* * ****** ** ******* ******, a ******* ******** ** **** ****** Summit ** *** *******.
Favors *****-***** *********** **** *****-******* *************
**** **** *** *** *****-********* ****** control ********, ****** ****** ******* *********** with ********* ******* ******* ** ******* an *****-***** ******** ** ******* ** manufacturers *** **** ** *** **** bigger ******* ************:
** *** * ****** ******* ******* asset-heavy [**********]. ** ***** **** ** asset-light ************* ***** *** ******* *********** to ******* *** ******** *** ****** ability ** *********** ***'* *** ******* in ***** ** ********** ** *** revenue ** ******* ****. ***********, ******* it's * ******** *****, *** *****-*****.
Target ****: $*.* - $* ******* ** ******
**** ************, ****** ****** ** ******* for ***** **** ********* ******* *** at ***** $*.* ******* ** ****** EBITDA, ***** ** "********* $* ******* or $* ******* ** *******, ** not ****, *** ********* ** - 100 *********." *** ***** ***** ** would ****** ***** ** ***** ****** $5 ******* ** $* ******* ** EBITDA, ***** ******** **** ** * "very ******** ****** ***** ** *** equity ********* ** [****] **** [*****] investors."
*********** *** ****'* ***** ****** ***** of $* ******* ** $* ******* in ****** *** *** ********* ** that ***** *****, ********* ** ********, "expect ** ***** ** ** ** EBITDA, ** *** ****," ***** ****** available ** ****** ****** ******** ***** be ~$** ******* **** *** *********.
******* *** ***** ***********, ****** ****** would *** ******* ** *** ****** the ******** ******** ***** ** ** willing ** *** *** **** **** as *** ****** ***** ** ****** "company *********."
Recurring *******
*******-****, *** **** ****** ****** *** recurring ******* ********* ** * ******* and *** ****** *********:
**** **'** ********** ********** ** ** when ******* *** *** **** ** recurring ******* ** ***** ******** ** is ***** ** **** ******** **** their ********.
[** **** ** *** *] ******* margin ******* *** *** ********* ******* is *********. ** **** ** ** least ****** *******.
******** ********** * ******* ********** **** previously ***** **** *** ** *** adding ********** ******** ** *** *****, as ** *******:
****'** ******** ** *** * *** aspect ** ***** ******* **** ** specific ** **********, ***** ** * software ********* **** ****'** ******* ** a ************ *****. *** * **** that **** **** **** ***** ** the ***** ******** *** **.
**** ******* ********, ******** **** **** he ** ******* *** ***** **** could "************* **********" **** *** ********** peers, **** ** ***** **** ********-******** expertise ** *****, ****** **********, ********...***. Overall, ******** **** ** ** ************* regarding ******* ***************/***** **** ******* ** as **** ** **** **** ****** the *****-********* ********* ********* *******.
***** ** *** ******* ** *** fund, ****** ****** ***** **** * business ** "*** **** *** *****," and *** ***** ****** ******* ** when *** **** *** ***** *****, Adelizzi ****:
** ***** ** *** ******, ** it ***** **** *** **** *** years. ** *** ****** ** **** the ***** **** ** ** ****** between **, *** ***** *** *** investors.
Pitching ** *********
******** **** *** **** ******* ** company ****** *** "******* ********* *** a ******* ********** ****." ** ******* referenced****** ******'* "*** ******" ***-******* *** ******* ** *** **** message ** ****** *********, ***** ******** the ******** ****** *****:
Committed ******** *** ********* **** *****/****** ****
***** *** ***********, ******** *** *** partner ******* **** "****** **** ** as *** *** ***, *** *** original ********* **** "**** *****." ** further ********** ***** ********** ** *** company, ****** **** ** *** *** partner ******* **** "******** ***** ****** for **** ********." **** ** * very ********* ******** ******** ** *********** private ********, ***** ***** *** ******** companies *** **** ** ** **** hands-off ** *** ********* *******'* ***-**-*** operations.
****, ******** **** **** ******** ** private ********, **** *** **** ********* in **** *****, *** ******'* **** in *** *** *******, *** *** legacy ****** ** *******, **** ** keeping *** ***** ****...***.
Grow *** ******** *********** ** *** "****** ******"
*** ****'* ****, "****** ******," ****** for "******** *** ******* *** *** leadership ** **** *** ******* ** its ****** ****** ***** *** ***** phase ** ******," ******** **** ****. Targeting ** "****** ** ******" ******* in **** *****, ******** **** *** strategy ** *** ******* "********* ***********," the ******* ******** ** ***** ******* equities ******** ********* ******* ****-******* *** "people-cutting." *******, ******** ***** ** **** the ******** *********** ******* ***** *** marketing ******* ** **** ** ************ in ******* **********, ***** ** ********** as "**** ** ***** *** ***** grow * ******** ******* * ********."
******** ***** ** **** **** ** the "***, *********, ** ***** * Suites" ** ** ***** *** ***********, and ** ***** "****** ** **** one ** *** ********** *** **** away, *** ****** ****** ****."
Hold ****: **** ** *** ***** ** ******
******* ******* **** **** ****** ****** apart **** ******* ******* ********, ******** said, ** *** ******** ********** *******. While **** ******* ******** **** ***** mandates *** ******* ** "***** ** five ***** ** **** *******," ******** and *** ********* ***** "**** ** long ** ******" ** "*** [***] personal **** *** **** **********."
********** *** ***** ***** ** *** company *** "** ***** **** *****," Adelizzi ********* ** *** ******** ******** when *** ********* ******* ******* *** exit ** *-** *****, ********* *** possibility ** ******* ** ***, ********* buyers, ** **** **********:
** **** ****** **** ** * bigger ******* ** **, * **, a ********* *****, ** **'** ** a ***** ***** ** **** ** as ********* *** ****.
[** * *****,] ** ********* *** capital ** ***** *** ****** ** the ******* ** *** *** *** original *********.
**** *****, **** ** ********* **** held ***** ******** *********** *** **** than **** *****, ******, **********, **** with **** *******, *.*., ********,** ******** *** ***, ** **** Selling *** $***+ ******* *** ****** Analyzed
Possible ****-***
****** ********* **** *** ******* ** the ******, ******** **** ** ******** opportunities ****, **** ***** ** ****-*** if **'* * ********* ***. ** referenced **** ** ** *******,***** ****** **** ********** ********, * smaller ****** ***** ********** ****, ** ****, **** ***** ***** the ******** ****** **** ***********. ******** also **** **** **** ** *** have * ****** ********** *** *** target's ********** ******** *** ***** ******** both ** ***** **** **** ********** coverage ** ***** **** *** *****-******* on *** ****** *** *** ********** there, ** **** ** **** *** the ****'* ******** ********* *******.
Investor **************
******* ***** ****** ****** ***** ***, ***** ** **** *** ******'* ********* *********, ****** ****** *****+ ***** ********* ************ ** *** ~$30 ******* ****. ******** ********** ** ***** *********' expertise *** *** **** ***** ***** as * **** ** *** *******:
*** ********* *** * ***** ** small ******* ****** *****, ****** *******, and * *** ****** *************. * lot ** **** *** ****** ************* or **** ******** ********* ****** **** different **********. ** **** ********* *** were ****** ********** ************* *** ******** businesses. ** **** ****** *** **** really ********** ** ********* ****** ****.
*** ****** ****** ** ****'** ********** operators *** **** *** ** ****** and **** **** **** ******* *** CEOs *** ***** *** **** *** capital *** **** *** ********** ****.
** *** *** ** *** ****** period, *** ********** ** *** ********* period, **** **** ** *** ******* for ********-****** *** ******** *** ** grow * *******, *******-*****, *** **** with ***** **********.
****** ** *** ******* *** ********* targets, ******** ******* *** **** *** acquisition ***** ***** "* ***** **** behind **** *** *** ******** ******** in ****** *** ******** *******."
Competition **** ****-***********
*** **** ** *** ** * challenge *** **** ****** **** ** that **** ****-*********** **** ******* *** are ********** ** ************ ******* *********** in **** **** ***** (*.*., ********* **** ** ** *** * Largest ****** ******** ********** (*** *********)********* *** ** *** ****-*** *** Growth ***** ********). ** ****, ***** ** ******* finding * **** ** ********, ** will *** ** ******.
** ** **** **** ******* * company, ** **** ****** **** ******.
**** ** *** *****....
*********, *** **** ** **** *** operators **** ******** ******** **********/********* *** can ******** **** ** ***** *** business ****** **** *** ******* *********** or ********** *** ****** ** **********.
** ********, * ******* *** ******* advantage ** **** ***** *** ******* of **** *********** *** ***** ** retirement, *** *** ****** **** *** earlier ** ***** *******, ****** *** a ***.
* ***** *** **** ** **** had ******* ** **** **** ** early ********** ** ****** ** **** it **, *** * ** ******* what **-******* **** ****** ***** ** the ***** *** ** **********. ** they **** ****** * ***** ***** manufacturer **** * ***** *** **** value *****, *** *********** ** * lot **** "** *** *****" **** I ***** **** *** ***** *** (especially ** *** *** **** ** 3-8 ******* * ****).
**** **** **** *** ******* *** at ***** $* ******* ** ******* / ** *********, ** * ***** at **** ****, *** ********** ***** have ******** ****** **** **** "*** weeds," *** ***** ***** *** **** be *****, ************, *** ****** ** scale.
** **** *****, ** *** ********** does *** **** ********** ********* ** the ******-******** / "****" ****, ** could ** * ******* ***** *** years.
**** *** **** ****** *** **** group….. ***** **** ** ********* ** the ******…. *** ** “*************” *** “disruption” ** *** ****-*** **********, ******* and ****** *******.
********, ***** *** **** ********* ***** re-active ******** ****** ********* *** **** decades ** ******* ******** ******** *********.*** ***** ***-****** ****** *** **** of *** ******* *** ****-*** *****.
** ******** * & * ***** for **** **********...**** *** ** **-****** and, **, ***-******, *** ******** ** necessary **/******** ********.*** *** ********?**** ******** *** ***. *** **** of ** ****-**** *********** *** *** confused ***.
-*-***-**-***-************** ** ******* ******** ************.
-*-******** **********,(*-*) ** ******* ******** ************.
*** (*) ***** …******** ***, **** 100 ***** ***, ***** ** **** industry, **** *** ***-**-***.** *** ***** *******, **** **** the ***** **** ***********, ** ********** all ** *** ******* *** ******** internally, ********* ****-********, ** ******* *** customer ***********…***- **-***.*** *** ********** ******** *** *************/***** lines, **** ** *** ************* *** later ****** ********.
*** (*) ****** ***/** ***********. *** ***********/******* ********* **** ***** every **** ** *** *****-***********, *-** critical ********, ** ****…. ********* ********* of * *****-***** ********** ******. *** end-user ******** *** ****** ***** ** those *********, ***** **** *** *** it. **** ** *** *** ***** false ***** ******* *******, *** ** many ******** ******** ********** *****.
******* ****, ****** ** ***** *** regional *********/***********, **** **** ** ********* and ****** *********, **** ******* ********** to ******* **** ********* ****** ******.****, **** ** **** ****-*** ********-**** equipment ***, ***-****** *****-****** ********** **********, including **, ** ********* *** *** necessary **/******** ********, ** ****** ******** of ******** ********* *** ******* ******** more.
******* **** *** *** ***….!
***** **** ** *********** ******** ** say-
"** **** * ********** ******** **** a ****** ***** *** *************** *** lots ** ***" (********* *** ********** ideal *******)...
*** **** ** **** ** **** in *** **** ** **** *** replace *** *** ********** **** ********* (no ******** **********, *** ** ********** then ****** ** ***** **********, *******, or ********).