Interesting and Very Interesting
Sometimes when people look at our portfolio they’ll ask a follow-up question like, “Why do you like retail?” or “What’s your fencing industry thesis?”
But the fact is that we don’t necessarily like retail apparel or have a fencing industry thesis. Rather, we like Rylee + Cru and Ace Fence. That’s both a distinction and a difference, so sometimes it’s helpful to talk through how those investments came to be.
During any given year we’ll see thousands of investment opportunities. Given all of those reps, our team has gotten pretty good about predicting – before we even open a deck – what the numbers inside are going to look like. If it’s a commercial subcontractor, for example, you’re likely to see 25% gross margins, low teens EBITDA margins (they always find a way to eke into the teens), and a 70-plus-day cash conversion cycle.
So what’s interesting is not seeing the twentieth one of those, but the one that doesn’t look like the others.
That was Ace Fence: it offered a different profile from the norm. There turned out to be myriad reasons why that was the case, and some of them simply can’t be replicated at another fence builder. So even though we like Ace Fence, we don’t like all fence builders.
Same thing at Rylee. We’ve seen a lot of consumer brands over the years and the playbook is broadly the same: load up on inventory, max out D2C ad spend, push the top line, and reload…never mind the risk. Like Ace, Rylee was different. It grew inventory graciously, balanced wholesale and D2C sales, and walked away from a major distribution partnership.
That’s interesting.
So when we’re looking at potential investments, one of the things we’re hunting is the unexpected. If we see that and can understand why – and why it’s sustainable – that’s not only interesting, it’s potentially very interesting.
– Tim
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