Changing Times. Bringing Out our Animal Spirit. Fighting. Rolling up our Sleeves. Creating Value.

5-Bullet Friday: Here are some observations on events / news catching my attention.

  1. Fight Club. Still relevant 20 years later.
  2. Silicon Valley is broken and heading for social unrest.
  3. The digital transformation of industries.
  4. Chasing “cockroaches”.
  5. How private equity generates exceptional returns? Value creation through buy-and-build deals.

'Fight_Club'_by_Conor_Harrington_based_on_'Massacre_of_the_Innocents'_by_Charles_Le_Brun_in_Dulwich_Picture_Gallery1

  • Fight Club. Still relevant 20 years later. The cult book / movie captured the zeitgeist of our time in the late nineties and remains just as relevant 20 years later. It is not a film about fighting. Here are 26 minimalist quotes from the film. Always a worth revisiting from time to time. A minimum level of introspection is healthy to keep in check external influences seeking to shape our lives. If we look under the hood of current popular political movements to understand what are driving them, we can sense a lot of anger and concerns about the future. The Trumps and Sanders of this world are surfing on this anti-establishment movement. Feeling stuck? We are fortunate in our democratic, modern western society. We are independent spirits, we have choices. Let’s stand up for what we believe in, but we must also take responsibility. Change requires adaptation to survive. Unfortunately, in a constantly evolving world, not everybody is as well equipped to benefit from the new opportunities arising.
  • Silicon Valley is broken and heading for social unrest. I am trying to understand why people are angry in perhaps the most prosperous, uplifting area of the world. Douglas Rushkoff, author of the book “Throwing Rocks at the Google Bus: How Growth became the Enemy of Prosperity” has a theory. Rushkoff points out that basic economy theory, as laid out economist and philosopher Adam Smith, recognizes three factors of production: Land, labor, and capital. But in the current digital economy, only capital is valued. Rushkoff recommends several changes that could save the digital economy. As a result, we can expect new, more sustainable business models to emerge.
  • Chasing “cockroaches”. 2015 was the year of the “unicorn” – private technology-driven startups with a valuation of $1 billion or more. But 2016 will be dominated by different beast – the cockroach. Unicorns are mythical, sexy, elegant, but fragile and represented the spirit of the last few years. Raising capital with too little substance was too easy. Starting a company and flipping it almost appeared easy. Entrepreneurship is a messy endeavour and inherently requires resiliency. A cockroach is a business that builds slowly and steadily, keeping a close eye on revenues and profits. Spending is kept in check so that it can weather any funding storm. Some unicorns will fade away, but cockroaches will survive through storms.
  • How private equity generates exceptional returns? Value creation through buy-and-build deals. BCG examined thousands of deals and reports that “buy and build” deals – where new corporate investments are merged with an earlier platform acquisition – generate a significant alpha versus standalone deals, especially in the mid-market space involving companies with relatively lower growth rates, lower margins, and high fragmentation. The study also identifies the best buy-and-build strategies. “Buy-and-build deals that involve cross-border add-on acquisitions” do better than “deals involving domestic acquisitions”; transactions that “take the platform company deeper into an industry generate average annual returns of 43.5%, compared with 16.4% for deals that diversify the business;” and buy-and-builds that include only one or two add-ons outperform “those that include more than two acquisitions.” The study notes that the buy-and-build share of PE investment climbed to 53% by 2012 from 20% in 2000. Buy-and-build is widely seen as a way to compensate for today’s historically high acquisition prices. More on “How Private Equity Firms Fuel Next-Level Value Creation. The Power of Buy and Build.”

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About Ludovic Dumas

Ludovic transforms innovative companies into world-class organizations. He is an investment professional at an investment firm representing the interests of one of the most successful families in Canadian business. Before joining the private equity world, Ludovic was an investment banker at CIBC and with ING Group’s investment banking team in Frankfurt, Germany. Mr. Dumas was also a management consultant with Deloitte where he worked on corporate strategy, restructuring, market analysis, due diligence, and economic development mandates. Specialties Mergers & acquisitions, capital raise, corporate strategy, entrepreneurship.
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