1. What do you see as the most promising sectors for investment in the U.S.?
We think segments like health care are going to perform well over the long term. Baby boomers will have increasing health care needs, which will create demand regardless of the state of the economy. Plus, the lowering of reimbursements from Medicare and Medicaid will only increase the need for strategic capital in the industry. We also think distressed situations will be a very large part of the most compelling opportunities over the short term. And we are actively pursuing debt-for-control situations where we can acquire good companies with bad balance sheets at very attractive buy-in valuations, yet still be senior in the capital structure.
2. Are you looking at investments outside the United States?
We are active in India, which has a vast emerging middle class with huge consumption potential. We like the domestic demand story in India, in which exports as a percentage of India’s GDP is only 22 percent. Also, India relies much less on leverage, and savings rates are much higher, about 35 percent of GDP, which should cushion the blow from weaker international growth.
3. What’s been your biggest challenge in the past year?
The Vanterra platform does not fit into a box, and our biggest challenge has been explaining our unique strategy to the marketplace. We form strategic relationships with partners in particular segments and geographies that we would like to pursue. Our platform calls for a concentrated number of strategic partnerships that we use to leverage our direct deal flow.
4. What are the key criteria for companies you find attractive in this market?
We think leverage is a critical metric in today’s environment. Despite a recent rally in equities, a lot of risks remain in the economy, and we see a long road to recovery. Low leverage multiples are key, especially if there’s a sustained downturn in economic activity. Second, we look for companies where we can create value through operational improvements and organic growth versus multiple arbitrage and leverage. Many of these improvements are as basic as realigning the interests of current management with that of the firm. Some managers are reluctant to reset compensation expectations, even if their companies are suffering.
5. What kind of investment opportunities are you looking at now?
We’re negotiating to acquire a secondary interest in a portfolio of direct investments from a distressed seller. The companies are in the business services and health care spaces. We are seeing that the disparity between bargain buyers and sellers unwilling to reset valuations to current market prices is large, so being able to get transactions done at values that make sense is difficult.