VSS Capital – US Private Equity & Structured Capital

Transcript

Why is the lower middle market such an interactive opportunity for investors in US private equity?

The U.S. lower middle market presents an attractive investment opportunity due to its scale, growth potential, and value-creation dynamics. With approximately 350,000 companies existing in this market, it offers a vast range of investment possibilities. These businesses tend to grow faster than the overall economy and often trade at lower multiples, creating opportunities for value appreciation. We can achieve higher exit multiples by successfully scaling them into larger enterprises. Along the way, we can support their strategic growth initiatives, further enhancing their potential. This combination of growth, scalability, and favourable valuations makes the lower middle market a compelling space for investment.

What makes VSS unique in this market?

VSS stands out in the market for several reasons. With nearly 40 years of experience since launching our first fund in 1987, we have a long track record of investing. We were early specialists in our focus industries, long before specialisation became common, allowing us to deeply understand these sectors and add meaningful value to the companies we invest in.

Beyond expertise, we take a hands-on approach as active partners. Through our role on the board, we provide strategic guidance, particularly in executing add-on acquisitions. Our involvement helps companies maximise value, not only during periods of growth but also in navigating challenges. This combination of experience, industry focus, and active partnership sets us apart in the market.

What can investors expect on long-term returns?

Investors can expect stable, long-term, and attractive returns. Over the past 20 years, we have consistently delivered returns exceeding 20%. Our investment structures are designed to protect against downside risk having endured several economic cycles over such a long period. At the same time, they are built to maximise upside potential. By maintaining a flexible approach, we create deals that balance both risk protection and strong returns.

How does VSS navigate challenging economic cycles?

We take a hands-on approach, working closely with company management to drive success. This can involve improving operations, optimising capital structures, or refining balance sheets and debt management. Our experience with over 100 portfolio companies, along with 600 add-on acquisitions over nearly 40 years allows us to provide valuable guidance across multiple areas. With this depth of expertise, we can support businesses through various challenges and opportunities, helping them grow and thrive.

How is VSS more of a strategic partner to its portfolio companies rather than just a financial investor?

We see ourselves as partners to management, providing strategic support rather than directly operating the businesses. Through our role at the board level, we help guide their growth and navigate challenges. Many of these entrepreneurial companies are executing a rollup strategy for the first time, acquiring and integrating businesses as they scale. With experience from working with over 100 companies on similar strategies, we offer valuable insights to help them succeed.

This transcript has been edited for written clarity.