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PRIVATE EQUITY

The Hefele Group exists to outperform market averages and provide the best risk adjusted returns for our investors. We make money by actively adding value to companies in areas where we have a knowledge and skill advantage relative to other investors. In order to have this advantage, we seek inefficient markets with imperfect information; we like markets less noticed by the wider investment world. It’s common knowledge that investors won’t make money if they continually follow market consensus – the market has already priced in future returns. In order for an investment vehicle to outperform, its team needs to break from consensus and look for underpriced deals in different areas. But we don’t just deviate for contrarians’ sake, we support our theses with sound information because we know we have to be correct. Fundamentally, we seek to see things differently in overlooked markets in order to drive arbitraged profits for our investors.

 

We have a set of tenets that drive our investment decisions:

 

Always purchase below the intrinsic value.

We believe the surest route to success comes when “the battle is already won” before the acquisition. We don’t seek overpriced trophy assets – even though the fundamentals of a company may seem strong, we always run the risk of overpaying. We prefer to purchase a lesser quality company at a deep discount because we can achieve better arbitrage and profits. We don’t make money through speculation or market tailwinds; we buy cheap and add-value to firms we believe have potential to make substantial profits for our investors.

 

We believe in cycles, but that we cannot predict the exact timing of peaks and troughs.

In our experience, completely unpredicted independent variables have caused markets to unexpectedly crash or accelerate. The world has too many independent variables for a forecaster to consistently call market trends. Given this randomness, it’s crucial for us to invest below intrinsic value to protect our capital from unexpected volatility.

 

Always manage risk – never lose money.

Any portfolio manager can take a high risk position and by sheer luck, achieve the year’s top 1% of market returns. This does not translate into quality investing. Unchecked risk positions may provide nice returns in the short term, but during the troughs of the long term, unmitigated risk will lead to substantial capital losses. Losing money is antithetical at our firm; we prefer to create consistent solid returns, rather than fall to the temptation of volatile high returns with unchecked risks and losses. The types of companies we pursue will inherently have risk, but we manage this risk before acquisition by clearly identifying the problematic issues, already having a well-defined solution in place, and purchasing at a deep discount. In the long run, we will win through attrition.

 

Aim to think different.

We don’t want follow the herd because that will never lead to outsized returns.

 

With these thoughts in mind, we have certain characteristics that we like when choosing investments:

 

  • Family owned businesses lacking professional management

  • Excessive debt and balance sheet issues

  • Highly free cash flow generative with organic growth potential

  • Low re-investment costs

  • Predictable and simple business model

  • Sales opportunities in American, Brazilian, Iberian, or other foreign markets

  • Tangible asset values in excess of business valuation

  • Low cost and essential products

  • Subscription or long term contract based recurring revenues

  • High client switching costs

  • Large distribution networks and ideological loyalty that consumers pay for

  • Clients diversified by end market and geography

  • Stagnant business model with potential for disruption

  • Competitive advantage or other barriers to entry

  • Fragmented industries with M&A potential

  • Counter-cyclical and non-seasonal

  • Under-performing spin-offs

  • Utilization of Portugal’s competitive advantages (cheap labor, warm weather, etc.)

  • Immune to extrinsic factors (change in commodity prices, interest rates, currency fluctuations, etc.)

  • Annual revenues between €5 and €50m

 

Sectors include, but not limited to:

 

  • Financial services

  • Food & Beverage

  • Pharmaceuticals and nutritional supplements

  • Health care and medical devices

  • Manufacturing

  • Agriculture & agritech

  • Automotive parts

  • Synthetic textiles

  • Metallurgy

  • Technology

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