Автор: Arashira
Thesis statement basics of investing
The investment thesis is no more or less than a definitive statement, based on a clear understanding of how money is made in your business, that outlines how adding this particular business to your portfolio will make your company more valuable. Many of the best acquirers write out their investment theses in black and white. Joe Trustey, managing partner of private equity and venture capital firm Summit Partners, describes the tool in one short sentence: "It tells me why I would want to own this business.
For example, our survey of senior executives across all industries revealed that only 29 percent of acquiring executives started out with an investment thesis defined in that survey as a "sound reason for buying a company" that stood the test of time. More than 40 percent had no investment thesis whatsoever! Of those who did, fully half discovered within three years of closing the deal that their thesis was wrong. Studies conducted by other firms support the conclusion that most companies are terrifyingly unclear about why they spend their shareholders' capital on acquisitions.
Surely companies should know whether a business area is related to their core before they decide to buy into it! Successful acquirers, by contrast, were more likely to cite "leading or responding to industry restructuring" as a reason for making an acquisition, suggesting that these companies had at least thought through the strategic implications of their moves.
Not that tipping one's hat to strategy is a cure-all. In our work with companies that are thinking about doing a deal, we often hear that the acquisition is intended for "strategic" reasons. That's simply not good enough. A credible investment thesis should describe a concrete benefit, rather than a vaguely stated strategic value.
This point needs underscoring. Justifying a deal as being "strategic" ex post facto is, in most cases, an invitation to inferior returns. Given how frequently we have heard weak "strategic" justifications after a deal has closed, it's worth passing along a warning from Craig Tall, vice chair of corporate development and strategic planning at Washington Mutual.
In recent years, Tall's bank has made acquisitions a key part of a stunningly successful growth record. On more than a few occasions, we have been witness to deals that were initiated because an investment banker uttered the Eight Magic Words: If you don't buy it, your competitors will. Well, so be it. If a potential acquisition is not compelling to you on its own merits, let it go.
Let your competitors put their good money down, and prove that their investment theses are strong. Let's look at a case in point: [Clear Channel Communications' leaders Lowry, Mark, and Randall] Mayses' decision to move from radios into outdoor advertising billboards, to most of us. Based on our conversations with Randall Mays, we summarize their investment thesis for buying into the billboard business as follows: Clear Channel's expansion into outdoor advertising leverages the company's core competencies in two ways: First, the local market sales force that is already in place to sell radio ads can now sell outdoor ads to many of the same buyers, and Clear Channel is uniquely positioned to sell both local and national advertisements.
Second, similar to the radio industry twenty years ago, the outdoor advertising industry is fragmented and undercapitalized. Clear Channel has the capital needed to "roll up" a significant fraction of this industry, as well as the cash flow and management systems needed to reduce operating expenses across a consolidated business. Note that in Clear Channel's investment thesis at least as we've stated it , the benefits would be derived from three sources: Leveraging an existing sales force more extensively Using the balance sheet to roll up and fund an undercapitalized business Applying operating skills learned in the radio trade Note also the emphasis on tangible and quantifiable results, which can be easily communicated and tested.
All stakeholders, including investors, employees, debtors, and vendors, should understand why a deal will make their company stronger. Does the investment thesis make sense only to those who know the company best? If so, that's probably a bad sign. Is senior management arguing that a deal's inherent genius is too complex to be understood by all stakeholders, or simply asserting that the deal is "strategic"?
These, too, are probably bad signs. Most of the best acquirers we've studied try to get the thesis down on paper as soon as possible. The perils of the "transformational" deal. Some readers may be wondering whether there isn't a less tangible, but equally credible, rationale for an investment thesis: the transformational deal.
Such transactions, which became popular in the exuberant '90s, aim to turn companies and sometimes even whole industries on their head and "transform" them. In effect, they change a company's basis of competition through a dramatic redeployment of assets.
Perhaps that list alone is enough to turn our readers off the concept of the transformational deal. We admit it: We keep wanting to put that word transformational in quotes. But let's dig a little deeper. Sometimes what looks like a successful transformational deal is really a case of mistaken identity.
But when you actually dissect the moves of such industry winners, you find that they worked their way down the same learning curve as the best-practice companies in our global study. DuPont was similarly patient; it broadened its product scope into a range of chemistry-based industries, acquisition by acquisition. In a more recent example, Rexam PLC has transformed itself from a broad-based conglomerate into a global leader in packaging by actively managing its portfolio and growing its core business.
Beginning in the late '90s, Rexam shed diverse businesses in cyclical industries and grew scale in cans. Then it bought U. In other words, Rexam acquired with a clear investment thesis in mind: to grow scale in can making or broaden geographic scope. The collective impact of these many small steps was transformation. What is the theory of change? What underlying assumptions does the thesis imply?
Do my proposed sector of investment, deal size, and deal type fit existing market needs? Do the expected returns and exit strategies seem realistic and appropriate given the market, investee potential, and investor expectations?
Demonstrating how a fund fits into the competitive market landscape is an important part of a coherent story. Fund managers might ask themselves: Would the fund be unique in the marketplace? How is it unique? What would make the fund compelling to investors?
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Typically, a savvy seller will get ahead of the process by preparing the investment thesis for the buyer by himself. As an example, even before a letter of intent is issued, private equity firms usually develop an investment thesis for every potential acquisition. It is usually done by presenting the future strategy of the company and its plans for the expansion and diversification of its services and products.
The aim is to show potential buyers that the company knows how to generate high returns for its shareholders. An investment thesis is typically done in a written form as a document or slide presentation. It is then presented to the buyer's investment committee to achieve deal approval. It gives the seller the opportunity to communicate the rationale behind the transaction. Although an investment thesis is generally considered formal in nature, there are no universal standards to be applied when writing up the document.
It can vary depending on the given situation. Some investment opportunities come with little time to take advantage, and therefore professionals have to act as fast as possible. In other scenarios, when it comes to bigger, global trends, an investment thesis may be well documented to include all the minutiae and specifications.
Remember that the principles of successful investing are quite simple. The hard part is to adhere to your initial plan through the ups and downs of the market. In this sense, an investment thesis can become your anchor, guiding you through the hardships. Related Terms. As with any thesis, an idea may surface but it is methodical research that takes it from an abstract concept to a recommendation for action. In the world of investments, the thesis serves as a game plan.
Understanding the Investment Thesis Most investment theses are in written form, and can be used to look back and analyze why a particular decision was made in the first place—and whether it was the right one. Let's say an investor purchases a stock based on the investment thesis that the stock is undervalued. The thesis further states that the investor plans to hold the stock for three years, during which its price will rise to reflect its true worth. At that point, the stock will be sold at a profit.
A year later, the stock market crashes and the investor's pick crashes with it. The investor recalls the investment thesis, relies on the integrity of its conclusions, and continues to hold the stock. That is a sound strategy unless some event that is totally unexpected and entirely absent from the investment thesis occurs. Examples of these might include the global financial crisis or the Brexit vote that forced Great Britain out of the European Union in These were highly unexpected events, and they might affect someone's investment thesis.
If you think your investment thesis holds up, stick with it through thick and thin. As markets ever evolve, so do the ideas and strategies investment professionals believe are best suited to take advantage of growth and value creation opportunities. Documenting an Investment Thesis An investment thesis is generally formally documented, but there are no universal standards for the contents.
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