why scout capital

For Scout Capital, the lower middle middle market is not a new fancy. The stakes are intimate. Small business offers the opportunity to get dirty, be impactful and partner with intensely committed individuals. Masterminding capital structure and bootstrapping multiples, while worthy, are not Scout's mission. Transformation is.

sometimes it takes a new point of view to get back to reality

Having led small businesses through cycles, crises and transactions as investor and operator, Scout Capital has a dual perspective. From two vantage points, more options and risks are visible. Competing priorities hide in plain sight. Scout taps its dual experience to escape inertia and kickstart growth.

sometimes it takes a generalist to make sense of the specialists

Specialization is on trend--and a logical evolution from financial engineering to add value. However, small businesses tend long specialization. What they lack are skills to filter noise and connect the dots to their marketplaces. Scout excels at rapid evaluation of mismatches between objectives and resources in the strategic chain.

sometimes it takes a certain "it"

Small businesses are personal places. People pout, quit and return the next day. Impact people exist in surprising places. An effective change agent has to breathe the same air and engage from back to front office. To coach in these fragile environments requires a certain "it." Scout has built its career honing "it" in the trenches.

past work

value added

The best laid plans and specs

company: specialty construction contractor and manufacturer

role: investor, interim CEO, lead board member

hidden value: mission critical in projects 50-100x its size; highly specialized niche

threat: misunderstood value proposition; decision making centralized and patriarchal

rally: Look outward. Be big.

National expansion based on re-defined customer and pain points. Data driven decision making using contribution margin estimating, forecasting and reporting tools. Dynamic pricing and scheduling practices. Revolutionary product development, standardization and modularization.

Successful navigation of construction recession and sale to a strategic buyer.

INSIGHTS

Inertia is fierce.
Rollover equity does not ensure commitment.
Unique skills can be a moat or handcuffs.
Zero turnover is not optimal; overcoaching is expensive.
Don't confuse ignorance with malice.

Never scale a railcar in heels.

company: extruded plastics manufacturer

role: turnaround professional, interim CEO, CFO, lead board member

hidden value: low customer concentration, competitive suppliers

threat: deceptive owner and leadership team, overvalued PPE and inventory, "audited" financials

rally: Simplify.

Turnaround through dramatic reduction in working capital and improvement in gross margins. Rationalization of unprofitable customers and products. Pricing and rebate matrices. Resin purchasing, natural hedging and usage tracking. Extruder optimization. Replacement of leadership and sales teams. Substantial purchase price adjustment and renegotiated covenants.

Massive positive swing in cash generation led to successful sale to a public company.

INSIGHTS

Inertia is fierce.
Rollover equity does not solve for asymmetrical information.
Collateral is not security.
A forklift driver can be an impact person; let people surprise you.

Wash, rinse, repeat.

company: specialty retained search services

role: crisis manager, interim CEO/COO

hidden value: contracts paid in cash, upfront, valuable customer base

threat: ownership rift and dysfunctional culture, key man risk, post close sales decline, bloated compensation

rally: One vision.

CEO termination. Broad business assessment. Re-set financial baselines and expectations. Sales strategy and tools development and launch. Real-time cash and sales forecasting. Accounting, financial statement and budget reconstruction.

Successful navigation through leadership and COVID crises, hitting sales goals and achieving pre-crisis liquidity.

INSIGHTS

Inertia is fierce.
Rollover equity does not ensure alignment.
Principles of convenience reveal themselves during crisis.
Loyalty to person tends to be rewarded while loyalty to mission goes unrecognized.
Process overload will smother innovation and welcome mediocrity.

Betamax, redux

company: proprietary security hardware and software manufacturer

role: engaged by independent sponsor

hidden value: simple disruptive technology, high quality and diverse customer base, high customer satisfaction

threat: no brand recognition, overworked CEO with no bench, fleeting patent protection

rally: Find the elephants.

In-depth market segmentation study. Key customer identification and profiles. Cost to serve analysis. Market sizing. Brand re-positioning and sales strategy adjustments. Strategic partnership survey.

Focused sales strategy led to revenue growth acceleration in high volume, low cost to serve accounts, attracting strategic partner and acquirer interest.

INSIGHTS

Inertia is fierce.
The hardest worker may be the biggest growth impediment.
Find customers who like to talk and you will find the keys to the kingdom.

Mind the sawdust.

company: manufacturer of custom millwork fixtures for big box retailers seeking turnaround capital and support

role: independent sponsor partner

hidden value: passionate craftsmen, modular-custom millwork niche, long term contracts

threat: high customer concentration, distorted incentives

Owner-operators confessed to intentional accounting misstatements in the days before close. Coached owners on how to re-state reporting and communicate to current lender.

Pulled the deal. Company filed for bankruptcy a year later.

INSIGHTS

Deal costs are sunk costs. Don't let the energy of a deal overwhelm.
Owners under stress (really, during any change of control) will say and do weird things.
Be grateful for the mistakes not made.

Liesl McDonald, is the Founder of Scout Capital. Prior to Scout, Liesl started her career in a top quartile single family office where she was part of an intimate investment team in charge of a large, diversified asset base. She furthered her training by earning a CFA charter and an MBA from the University of Chicago Booth. Her exposure to alternative assets and her natural desire to build led her to small business private equity. She started her private equity career with an independent sponsor before launching Scout Capital in 2005. Samples from her experience are described above.

lmcdonald@scoutcapllc.com

m: 847.924.8029