There is more to the word “strategy” than its surface definition when it comes to investing, according to Matt Bean, managing partner of Lowden Street Capital, LP.
The private equity firm provides liquidity to rural business owners looking to exit their businesses but have no succession plan. The company was founded in October 2017 and acquired its first investment in January of 2018.
“I copied the style of a firm I followed in Boston, Massachusetts. Business owners’ net worth is often locked up in a business, and we can come in and buy them out,” said Bean, who was a civil engineer for about eight years.
Since graduating from Texas Christian University with an MBA, Bean has focused on creating his private equity shop.
“I can build my track record with limited capital by focusing specifically on small businesses in rural areas where there is less competition from bigger firms,” he said.
Currently, Lowden Street Capital owns Polar Bear Inn located in Branson, Missouri, and Good Labor Jobs, located here in Alexander City. The previous owners of these companies had no one to whom to pass the company. The extended-stay apartment complex basically runs itself, said Bean, but he’s been very involved in the operation of the staffing business.
“The person who was running Good Labor Jobs recently left. That’s part of this model – that you have to be willing to step in and take over if you have to,” said Bean.
While the ultimate goal is to sell both investments after harvesting the gains, Bean said he might hold on to some specific businesses in future portfolios. Good Labor Staffing is one of those examples.
“If Lowden Street acquires a business that needs employees, we can just cycle them through the staffing business. It would be a prime example of vertical integration and building competitive advantages,” said Bean.
While the returns aren’t correlated with traditional investing, he said, private equity is still capable of generating high returns, especially when businesses are small because of the law of large numbers. In the alternative investing universe, private equity is lower risk than both hedge funds and venture capital.
“I’m buying existing, established businesses that already have a plan and system that works. Utilizing a method called a leveraged buyout, Lowden Street uses a company’s balance sheet as collateral for a loan. Essentially, I utilize the history and health of the company and its assets to secure the debt with the bank. Then I pay it back with the value of the business,” Bean explained.
By maintaining a business’ brand equity and employees, Bean said, he tries not to alter anything about the business that would be noticeable to the average person, aside from some cost-saving techniques.
The $2.5 million fund Bean raised initially was meant to be a seven-year fund, but he said he hopes to return the capital to investors sooner than that. His plan is to raise another one in January 2020 that will be closer to $10 million.
Bean’s business partner, Ron Yu, handles the accounting end of the business and lives in China. The two met at TCU. Bean works on the strategic and operations side of Lowden Street.
“I used to never understand strategy – it was just a word – but there is so much that goes into a business to position it to create competitive advantages that will lock in customers and push out others,” he said. “It’s important to understand the entire industry, supply chain and all competitive forces at play.”
Bean hopes to acquire another business by the beginning of next year and raise a new fund every three to five years. The goal is to eventually raise a half-billion-dollar fund and create shops in different states.
“There are a lot of small businesses everywhere, and with baby boomers retiring, there is an immense amount of wealth locked up, and it’s got to go somewhere,” said Bean.
Bean’s office is located in the Lake Martin Innovation Center where he’s been able to meet a lot of new people.
“It’s a small office, just for me. It fits my needs and with everything included, you can’t beat it. The biggest draw is meeting people,” he said. “In my industry, you never stop networking and learning about what other businesses are doing because you might pick up something you can use later. It’s a fun industry to be in, and people are always welcome to stop by for a chat.”
For more information about Lowden Street Capital, visit lowdenstreet.com.