In The Trenches Rethinking Asset Intensity in Search Fund Acquisitions
6 snips
Jul 31, 2025 Dive into the fascinating world of asset intensity in acquisitions. Discover why the mere presence of capital expenditures shouldn’t automatically disqualify a business from consideration. Learn how to assess companies with heavier capital needs and why traditional EBITDA metrics might fall short. Explore alternative valuation metrics that can paint a clearer picture of a company's true worth. This discussion promises to challenge conventional thinking and offer fresh insights for savvy investors.
AI Snips
Chapters
Transcript
Episode notes
Differentiate Strategic vs Routine CapEx
- Not all Capital Expenditures (CapEx) are equally detrimental to free cash flow.
- Some CapEx offers strategic advantages or significant ROI, distinguishing growth investments from routine maintenance.
CapEx Upgrade Benefits Buyer
- An equipment rental company upgraded its fleet heavily just before being sold.
- Buyers gained long-term rental income without immediate large cash outlays, benefiting from prior CapEx.
Limitations of EBITDA Multiples
- EBITDA multiples estimate investment yield and payback based on cash earnings proxy.
- However, EBITDA can mislead when capex or intangible assets materially affect true cash flow.