I'm looking at an opportunity with a business that has great fundamentals but operates in a small (but large enough) niche within a highly consolidated industry. It appears so far that the larger players don't service the niche this company competes in and would likely have trouble doing so. The industry is mature and the business has grown roughly 5% each year for the last 3 years and has been in business for 30 years.
Would you avoid this industry despite the business being solid? If you have operated in an industry with similar dynamics, what was your experience like?
Growing Business in a Consolidated Industry
by a searcher from The Pennsylvania State University - Smeal College of Business
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If you've already raised a fund and/or plan to raise a material sum of outside equity, you'll be more incentivized to grow the business. In this scenario, a solid & stable business might not be the best opportunity if its growth is capped. This differs because you're financially rewarded through carry vs the accretion of your own equity investment.
Whereas a 20% unlevered yield would be a homerun in scenario 1 , due to the concentration of cheap debt (up to 90%), a 20% unlevered yield in scenario 2 may not net you a big financial return if you're heavily funded with equity.