DEMYSTIFYING VALUE CREATION

WITH DAVID CAUTIN

David Cautin recently joined NCA as Partner, spearheading the deal journey in our ETA workflow and overseeing M&A, legal, and value creation activities with our Entrepreneurs. The role is a perfect fit considering David’s strong CEO track record of building robust, profitable growth companies. David sat down with us to share insights into the value creation process and offer some tips for how NCA Entrepreneurs in our ETA program should approach their growth strategy.

WHAT IS VALUE CREATION?

While the concept of value creation may seem intimidating, David assures us it isn’t as complex as it sounds. “In value creation, less is often more,” he explains. “It’s really a process that can be clearly broken down by examining the story behind the company’s potential revenue and margin growth and relating that story to Entrepreneurs’ personal experiences.”

David continues: “The best advice I can give candidates applying for our ETA program is that their target company should be something they find personally attractive, it should have an organic growth story about it, and that story should leverage their past experiences and skills,” he says.

The organic growth story David describes is told through a combination of pre-defined avenues, which he listed in clear, bullet-point fashion. “With the types of SMEs NCA is working with, that typically means you have to build a plan to either sell more products to the same customers, sell new products to the same customers, sell products to new customers, or raise your price. You can also focus on operational excellence and running the machine more efficiently by improving productivity, leveraging fixed costs, pushing on suppliers, or moving variable costs to fixed costs, things like that.”

“What is key,” David added, “is that you have to have top-line growth. Because top-line growth helps drive multiple expansion.”

ACQUISITIONS ARE NOT AN ORGANIC GROWTH STRATEGY

When building an investment thesis, NCA advises candidates to think beyond the concept of future acquisitions as a way to achieve growth. “Acquisitions are hard,” says David. “Yes, they are a part of the story, but simply saying your strategy is to acquire is not super interesting.”

David advises Entrepreneurs to think of future acquisitions as an accelerator, not a strategy in and of itself. “For example,” he says, “if you have a company that has a geographic expansion strategy or a product line expansion strategy, that’s the type of strategy that would lend itself to acquisitions because they will naturally accelerate the expansion.”

David also suggests Entrepreneurs focus on telling an authentic story about how the business is part of a bigger opportunity. Considering most NCA ETA deals are a LBO (leveraged buyout), Entrepreneurs also need to keep in mind that there will be debt from the offset, along with interest and principal payments. “The first year can be financially tight,” explains David, “with little room for error. That’s why the business has to have its own organic story, beyond more acquisitions, that would get investors excited.”

THE REAL SECRET TO VALUE CREATION?

LEVERAGE YOUR PAST EXPERIENCES

The best way to tell an authentic, organic growth story depends on Entrepreneurs finding a personal connection to their target company. “They must find their passion, because this is a long process,” emphasizes David. “You want to find something you are passionate about and leverage your past experiences.”

David advises Entrepreneurs to think about what they specifically, as the entrepreneur and future CEO, bring to the equation. “Ensure the business aligns with who you are,” he says. “It should be a personal story of not just why you’re passionate about the business, but, then as CEO, how your past experiences will give you a strong foundation for growth with that specific company.”

VALUE CREATION BEGINS AT DAY ONE

Finally, thinking about value creation up front, while building a pipeline, is what will set Entrepreneurs up for success, David explains. “It’s all about making their investment thesis more personal from the start,” he says. “That’s how you make it compelling.”

Most investment theses are dry, and that’s simply not what investors are looking for. Take big headline entrepreneurs, like Elon Musk, for example. “He can be controversial, but he is not boring,” says David. “He has a big vision and he talks about his vision; that’s what investors want to believe in.”

That big vision is key when writing an investment thesis, David highlights, even in the LBO market, when Searching Entrepreneurs may be looking at more predictable businesses with existing cash flow and history. “Investors still want the romance,” David explains, “and bringing that personal connection to the forefront of an investment thesis is what will make the difference to them.”

As a final thought, David adds: “What makes NCA different and special is that the Entrepreneur is front and center. So Entrepreneurs need to lead with their passions and what they uniquely bring to the table in terms of experience, then find a company that’s at the intersection of those two things. Do that, and everything else will work out.”

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NCA’s ETA program is supported by a wide range of specialists, analysts, and advisors that make the Entrepreneur journey as seamless and successful as possible. Whether that’s in deal sourcing or value creation, NCA’s expertise in Search Fund investing, M&A, Legal, Marketing, and Investor Relations makes us a valuable partner for maximizing potential and de-risking search fund investments together.

Ready to join us? Visit our website, to find out more.