Merchant Banking

General

Through Seidman Capital, the Merchant Banking division of Seidman & Co., Inc., we seek investments in established and growing small- and medium-sized manufacturing, distribution, and service companies that have or can establish market leadership positions in their respective markets.  We are long-term investors.  Key factors we look for include:

• Primary operations or headquarters in or near Chicago, New York City, Detroit, and Miami
• Talented management with successful track records relevant to the subject business
• Differentiated products with high barriers to entry
• Products/technology with sustainable competitive advantages
• Intellectual Property which is owned by the company or where it has worldwide exclusive use
• A clearly defined and focused strategy for growth and substantial market opportunities
• For new products or product extensions: proof of concept completed
• Clear market analysis covering the addressable market and competitive landscape

Market Sectors

Our model is to invest only or primarily where we can add value through the skills and expertise of our Management Team.  We therefore generally look for investments in the following sectors:

• Fragmented industries where participating companies offer business-to-business services, infrastructure, or companies positioned to benefit from new developments in outsourcing or technology
• Business services
• Medical devices
• Healthcare product manufacturers and suppliers
• Laboratory testing and analytical services, including measurement and calibration services
• Test and measurement equipment manufacturers
• Integrated circuit products or semiconductor production equipment
• Companies with product attributes including considerable engineering and intellectual property value added.  This includes companies with products which would be considered commodities but for the intellectual property dimension noted above.
• Commodity suppliers where the business model has built in advantages or barriers to prevent competitive entrants (e.g. commodities which are sold regionally due to high weight to value)
• Production machinery and capital equipment sold in North America, whether made in the U.S. or offshore
• Value added components for high volume durable goods (e.g. vehicles, appliances, machinery)
• Distribution companies involving products above
• Service companies involving products above
• Aftermarket companies focused on spare or replacement parts for industries cited above
• Specialty plastics
• Defense, security, and aerospace service companies

Industries and transaction types that we have no interest in include:

• Retail businesses
• Restaurants
• Oil and gas
• Entertainment
• Companies providing pure commodities with no inherent advantages in the product (e.g. intellectual property) or service (eg. Distribution channels)
• Start-ups 

Business Lifecycles

We seek businesses which are profitable and growing, and which are on the verge of an explosion in top (revenues) and bottom (profits) lines, but which are capital constrained. 

We are open to investing in both private and small public companies. 

While we are not opposed to turnaround situations, we are wary of them.  Current management and shareholders of a turnaround must provide an especially compelling investment rationale, and clearly demonstrate the turnaround provides the additional risk premium necessary to induce investment in the subject turnaround rather than a growing and profitable company which is capital constrained.

Investment Structure and Type

While our investing for control is not required, we seek opportunities where we can (1) contribute substantively to the success of the business, and (2) monitor the progress of our investment.  Consequently, while we don’t require a controlling investment (either through a meaningful minority stake or a controlling position), we minimally require representation on the board of directors of our investments.

Our transaction types include:

• Control or non-control as noted above
• Acquisitions
• Recapitalizations
• Growth financing
• Management buyouts

We can invest as little as $0.5m at the "seed" stage to $5.0m or more at the expansion and rapid growth stages of a company's development.  We seek companies with revenues from $10 to $100 million, and cash flows from $2 to $8 million.   While we can work throughout the United States, we prefer companies with operations or headquarters near Chicago, New York City, Detroit or Miami.

Management Team

We devote significant focus to the quality and experience of the management team. The company's key managers must have a proven track record relevant to the subject company, an exceptional ability to communicate the company's story to employees, customers and investors, and a deep commitment to creating value for shareholders. 

As we are an active, value-added investor with a "hands-on" approach to supporting the company-building process, we look for management teams with whom we can structure a partnership relationship.   This means we want management and us to have similar, closely aligned, and well articulated objectives and incentives.

We create incentives through equity participation for all key members of the management team. We seek to offer well considered, educated, strategic recommendations, although company management still makes the critical decisions and runs the day-to-day operations. We seek to assign one or more of our operating partners to each company. The operating partners are mutually selected to be the best fit, to be sensitive to the organization's dynamics and to work with the management team from the very beginning of our involvement.  This is our way of ensuring that owners and managers receive informed, professional and vested attention through a dedicated and authentic partnership. Our operating partners seek provide a reliable and constant sounding board and strategic resource, long after the transaction is completed.

The companies we want to partner with have a product, service or management team that sets them apart.  We like to work with people who are passionate about growing and improving their business, including people willing to bet on themselves, people with a sense of vision and a proven way of finding and capitalizing on their very own niche, and people who have devoted their time, energies and often their fortunes in pursuit of quality, service, a better way.