Nathan Sykes

April 5, 2021

Adding Leveraged Buyouts To A PE Investment Strategy

I turn 18 in six days. Hooray! I'm super excited for a number of reasons. I'm excited to finally be able to use CLEAR when I travel in airports, find my own therapist who isn't legally obligated to turn over information to parents or guardians, and open a bank account in the United States (I've had to bank in countries that are more friendly towards minors maintaining their own accounts, or bank through my company). But aside from the perks of officially being an adult in every state than Nebraska, what I'm most looking forward to is being able to finally leverage debt to further the work we do at Howdy Interactive.

I've been profit-first for a long while, and I do completely believe in the policy. Running your business with the intention of generating a profit from day one is an incredible philosophy that we'll continue to use at Howdy as we manage our portfolio companies. I originally found out about Profit First because I legally had no other options - a minor can't take on business debt that's guaranteed by the government. I had to operate on a profit-first basis, because I didn't have access to any money. On April 11th, that changes.

I'm approaching this very weirdly (you can really say that about my entire approach to private equity). Most PE firms usually start with leveraged buyouts (LBOs) in mind, and may expand into other disciplines. They count on being able to use debt to lower their upfront invested capital. (While I was a minor, my version of that was negotiating pricing terms over 24-36 months. It lowered upfront invested capital for me, but provided steady, monthly cashflow to the founders of those companies). Because I was a minor when I branched into private equity, I didn't have access to lending or financing options.


There's certainly a subsection of PE that exclusively deals with transactions involving cash on hand without leveraging debt at all (growth equity in particular comes to mind), but the 'crown jewel' of private equity transactions are certainly leveraged buyouts. I'm really happy I'll be able to join that field. We'll be increasing our micro-company deal size from $250,000 (cash-on-hand) to $500,000 (LBO exclusive). All of our CoH acquisitions will continue to be $250k. We still anticipate making quite a few of those, as well as putting money towards our own micro-companies that we'll be validating and scaling in-house. It wouldn't be Howdy Interactive unless we did things the unorthodox way!

We just built out our first in-house LBO financial model to be used in the field for initial diligence on a transaction before we start talking to founders and taking more time out of everyone's day. Not a moment too soon, too - we have 13 companies as of this morning that have pre-registered for us to take a look at them as a potential acquisition target. With a more lucrative offer to give to founders, we anticipate a large wave of deals entering our pipeline in the next few weeks. I hope to build out meaningful banking and lending relationships with some private SBA lenders. This is an exciting next step into the private equity world for us!