Our investment strategy and team infrastructure allows us to pursue an in-depth, yet efficient and timely, decision making process.
Once we have identified an investment candidate, we focus on the following:
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Business Review: This includes a comprehensive review of a company's business and industry sub-sector. As part of this review, we perform in-depth due diligence, financial analysis, evaluation of different operating scenarios and alternative capital structures. Key themes that we generally look for when investing new capital, include: (i) strong existing management or the opportunity to augment management; (ii) participation in an industry in which we have experience and expertise; (iii) a viable competitive position; (iv) opportunities to grow and generate increased cash flow; and (v) possible exit scenarios. In general, we seek to avoid pre-revenue "start-up" businesses, unproven technologies and markets, or hostile takeovers.
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Management Assessment: A company's management team is paramount to the potential success of any given investment. We assess management's past performance and experiences against the expected path that may be developed for a company on a going-forward basis. These critical capabilities range from people skills to financial acumen, product knowledge to customer awareness and competitive positioning to performance attainment. We seek to identify and support companies with proven and capable leadership. Our goal is to supplement management and focus the Fund's knowledge base, resources and contacts on unlocking and building shareholder value.
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Determine Sigma's Value-add: Sigma looks to increase shareholder value through active involvement in all facets of the portfolio company's business. Pre-investment, Sigma analyzes the various avenues it can add significant value to a portfolio company by actively assisting in; (i) business development, (ii) financial restructuring, (iii) streamlining operations, (iv) driving M&A activities, (v) optimizing organizational structures, (vi) management and board recruitment, (vii) enhancing corporate governance, and (viii) increasing capital markets visibility.
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Capital Structure Analysis: We conduct comprehensive capital structure due diligence, including an evaluation of the terms and underlying structure of a company's debt and equity securities. This review includes a thorough analysis of the underlying documentation for each security, employing forensic accountants and appropriate counsel where necessary.
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Valuation Analysis: Sigma performs a thorough valuation analysis on each prospective investment. This analysis takes into account a company's enterprise value as a going concern and its break-up or liquidation value. It also incorporates a comprehensive review of market benchmarks, regulatory issues, and other factors that can impact valuation. Independent financial models are developed for each investment opportunity based on projected financial and operating results.
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Structure investments to limit downside risk and maximize returns: Once an investment opportunity has been identified, we then determine the key drivers of investment returns, as well as the major risks and challenges inherent in each investment. After detailed analysis, Sigma negotiates the deal terms and structure necessary to maximize returns and mitigate risks. These vary from deal to deal, depending on the attributes and constraints of the business, and can range from straight equity to preferred equity to highly structured debt instruments that include both protective covenants and significant equity components.
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Exit Potential: When making an investment, we seek to evaluate multiple exit options. Exit strategies may include a public offering, a private sale to a strategic or financial buyer or a recapitalization. An analysis of the exit or the liquidity strategies for each investment will be made as part of the initial evaluation and will be monitored on an ongoing basis throughout the life of the investment.