KUHN CAPITAL Monday, March 19, 2018
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The Day of the Jammborg


The acronym “Jammborg” stands for “Just Another Mid-Market Buy-Out Group”. According to Investment Dealers' Digest, use of the faintly derogatory term has been growing about as fast as the number of firms it describes. This fact, in turn, raises questions about whether mid-market PE groups are becoming commodities.

What we know is that each day legions of junior associates from hundreds of Jammborgs call company principals and investment bankers like us looking for an inside track on a great deal. Tough job. They don’t know these principals and -- for that matter -- much about the company’s circumstances or even its industry. So they have a hard time coming across as someone to whom you’d want to trust your company’s future.

They also don’t seem to understand that most investment bankers are retained to maximize the sale price of their seller clients in auctions, not pass along freebie proprietary deals. We’re only a source of good deals for our clients. That's why they pay us. We guess these hard-pressed callers figure that if you contact enough people you'll eventually get lucky. We think they’re going to get less and less lucky.

We also know that, when working for a buy-side PE firm client, we’re increasingly feeling the need to convince the seller that we should be favored over our competitors on some basis other than merely the price we’re willing to pay. Especially for those lacking operating synergies, the last thing a PE group wants to do is compete on price.

But many Jammborgs advance the same arguments about boards of directors experience, deep pockets, closeness to management, etc. It’s the song of the commodity. Without something unique or at least different, those sorts of buyers can find themselves summarily lumped together with their brethren, all of them fighting over price.

Not that all Jammborgs are insensitive to the plight of too much money chasing too few quality deals. Some tactics have emerged. One consists of being a buyer certain enough about his value-add that the deal structure reflects those future earnings. Another consists of going down-market, into smaller deals where professional competition is rarer.

But the one tactic that we believe is the most fruitful is still nearly absent from the middle-market scene. It’s called industry or geographic specialization and we’ve built our entire service model around it.

Going deep into a specialized sector means you learn its key issues, its leaders and its likely future. You’re a better judge of a specific company’s position and you know more about where its landmines and buried treasure lie. You build up trust among the industry’s players. In a word, you bring something to the party besides money.

Of course, sector specialization isn’t without risk. You may choose the wrong sector. And you’re going to spend more time and money getting up to speed. But at least you’re not playing against worsening house odds, waiting to get lucky with your next “great” deal.

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