Private Equity Writ Small: 1847 Holdings Provides Niche Fund To Focus On Small Business Growth

The private equity industry has exploded in the last decade and, while the market for initial public offerings may have stalled, the appetite for investment in private markets has driven some niche developments.

One such example is 1847 Holdings LLC EFSH, a New York-based, publicly listed PE group that leverages “private equity discipline to serve public equity investors.”

Ellery Roberts, chairman, CEO and president of 1847, says the company operates in a niche area of the PE spectrum, with a focus on buying and managing a group of small businesses, companies that typically have an enterprise value of less than $50 million.

“Funds have expanded in size so much, smaller funds these days are so much harder to find,” Roberts tells Benzinga.

“So, I thought it was time to create a smaller funds platform to look for smaller deals that would be governed and managed by a small team that can move and react more quickly.

“And so our business is based on the premise of being proactive, so we can move aggressively when we see opportunities and create better outcomes in a way you rarely see in public markets,” he adds.

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Broad Investor Base

This type of investment is increasingly popular with non-institutional investors such as family offices and high net worth individuals, and these are among 1847’s chief backers, as well as retail investors.

The 1847 fund has around $70 million in assets under management, leaning toward consumer-facing businesses that produce goods and services that provide a higher return on capital, rather than asset-burdened companies that can incur higher costs from maintaining those assets.

“We look for businesses that provide a very high return on capital at low valuations based on a limited number of potential buyers, or a limited awareness of the true value of the asset’s potential, and based on what we can do with business given our experience of growing asset-light businesses.”

Roberts and his team seek out family companies that have no succession plans and a limited number of interested buyers to find the best valuations. The bigger the company, the more options it has in terms of potential buyers, he says.

“It’s a really niche area, given the rise of trillion-dollar market cap companies where capital now seems to gravitate. So this has left a dearth of buyers for the the smaller businesses which are the driving engine behind the U.S. economy.”

The purchase price on acquisition targets for 1847 ranges between $4 million to $15 million and, when it comes to exit, Roberts says the fund has sold companies for as much as $60 million.

The market is expanding in a way that’s only going to lead to more opportunities as entrepreneurial baby boomers and subsequent generations look to exit the businesses they founded and enjoy their later years.

“Where founders who haven’t made escape plans, haven’t handed off businesses to family members or employees, through our vehicle we can provide them that opportunity and we expect to find some attractive acquisitions in the coming years,” says Roberts.

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Image: Courtesy of 1847 Holdings.