Private equity continues to lead all asset classes in long-term investment performance.

In fact, in an analysis of 163 US public pensions, the median annualized return for the past 10 years (through 2018) from private equity was 8.6%, versus a much lower 6.1% for public equity, 5.3% for fixed income, and 4.7% for real estate.

Another study, looking at the 10-year period through 2015, which included the financial crisis, shows an even more stark contrast, with private equity leading at 11.8% versus just 6.9% for the S&P 500.

chart of an average 10 years return

Looking at even longer-term horizons, private equity still reigns supreme.

One study in particular showed that a hypothetical $10,000 investment in a fund that tracks the S&P 500 would have grown to $76,123 over the 30 years through 2017. Not bad—until you learn that the same $10,000, invested in private equity, would have grown to an average $211,071, or 2.5 times greater than the S&P 500 returns.

Despite the potential for above-average returns, for most investors, apart from the ultra-wealthy, accessing private equity is nearly impossible.

Because direct investment into a company or firm often requires large sums of cash, private equity investors generally must shell out significant minimum investments when going through a firm, which can range from the mid $200,000 range to $10 million or more, depending on the firm or fund.

1847 Holdings (OTC: EFSH), a relative newcomer to the space, offers an attractive alternative for retail investors wanting to add private equity exposure to their portfolios.

As a publicly traded company targeting lucrative opportunities in the lower-middle market, EFSH gives retail investors access to the top performing asset class with the benefits of a public vehicle, including transparency and liquidity.

While traditional private equity investments, whether direct or through a fund, typically require extended capital lockups, with EFSH, investors can buy and sell their shares in the open market.

Currently EFSH trades on OTC Markets. As a fully reporting company with the SEC, its likely EFSH will seek an uplisting to a major exchange in 2020, likely following one or more key acquisitions.

man in suit sitting at desk infront of computer fliping through some papers with pen in hand

EFSH looks to acquire niche market leaders that generate high free cash flow, operate in attractive industries, have defensible market positions, demonstrate a strong “reason to exist” and have been acquired at high EBITDA yields (20% to 33%) relative to Purchase Price/Enterprise Value.

EFSH targets lower-middle market companies with at least $1 million in EBITDA in the trailing 12-month period.

Lower-middle market companies, as defined by EFSH, are those with revenue of between $7.5 million and $50 million. This is an attractive and large market segment, representing approximately 90% of all private companies in the US.

Despite its overall size and attractive investment characteristics, the lower-middle market is often overlooked by larger private equity funds. In fact, it’s estimated 90% of private equity capital is deployed in middle market and larger deals.

There is certainly no shortage of deal opportunities in the lower-middle market.

Many of lower-middle market businesses are owned by the Baby Boomer generation.

In 2012, “Baby Boomer retirement” became the primary driver of business sales in the private lower middle market, a trend that is anticipated to persist for years to come.

Researchers have estimated that more than $10 trillion in business assets may be transferred by 2025.

This trend places EFSH in an advantageous position, with a potential onslaught of sellers and limited buyers.

EFSH completed its first private equity investment in March 2017 with the acquisition of Neese, Inc.

Headquartered in Grand Junction, Iowa and founded in 1991, Neese is an established business specializing in providing a wide range of land application services and selling equipment and parts, primarily to the agricultural industry, but also to the construction and lawn and garden industries.

Neese’s revenue mix is composed of waste disposal and a variety of agricultural services, wholesaling of agricultural equipment and parts, local trucking services, various shop services, and other products and services.

Services to the local agricultural and farming communities include manure spreading, land rolling, bin whipping, cleaning of bulk storage bins and silos, equipment rental, trucking, vacuuming, building erection, and others.

For the year ended December 31, 2018, Neese generated $7.3 million in revenue, up from $6.4 million in the year prior.

In April 2019, EFSH completed its acquisition of substantially all of the assets of Goedeker Television.

Founded in 1951 and headquartered in St. Louis, Missouri, Goedeker is a one-stop e-commerce destination for home furnishings, including appliances, furniture, bath and kitchen fixtures, décor, lighting and home goods.

Goedeker has evolved from a local brick and mortar operation serving the St. Louis metro area to a large nationwide omnichannel retailer.

While Goedeker still maintains its St. Louis showroom, over 90% of sales are placed through its website at www.goedekers.com, which offers over 500,000 SKUs, organized by category and product features, providing visitors to the site an easy to navigate shopping experience.

screenshot of Goedeker website home page with 2 rows of Appliance category

Goedeker generated more than $56 million in revenue in the 12-months ended December 31, 2018 and is now one of the top appliance retailers in the country.

According to EFSH management, its current two portfolio holdings generated a combined $64.18 million in revenue over the last 12 months.

Key Competitive Advantages

EFSH is well positioned to succeed and has set itself apart from the competition in myriad ways, beyond just providing retail investors access to private equity. Some of the key competitive advantages include:

map of the use with arcs showing netm=wrok connection

  • Robust Network - By employing an institutionalized, multi-platform marketing strategy, we believe our manager has established a robust national network of personal relationships with intermediaries, seasoned operating executives, entrepreneurs and managers, thereby firmly establishing our company’s presence and credibility in the small business market.
  • Disciplined Deal Sourcing - Deal sourcing efforts include leveraging relationships with more than 3,000 qualified deal sources through regular calling, mail and e-mail campaigns, assignment of regional marketing responsibilities, in-person visits and high-profile sponsorship of important conferences and industry events.
  • Differentiated Acquisition Capabilities in the Small Business Market - EFSH’s evaluation of acquisition opportunities typically involves significant input from a seasoned operating partner with relevant experience, which the company believes enhances both diligence and ongoing monitoring capabilities. In addition, the company approaches every acquisition opportunity with creative structures, which enables it to engineer mutually attractive scenarios for sellers, whereas competing buyers may be limited by their rigid structural requirements.
  • Value Proposition for Business Owners - In addition to serving as an exit pathway for sellers, EFSH seeks to align its interests with the sellers by enabling them to retain and/or earn (through incentive compensation) a substantial economic interest in their businesses following the acquisition and by typically allowing the incumbent management team to retain operating control of the acquired operating subsidiary on a day-to-day basis.
  • Operating Partners - EFSH management has consistently worked with a strong network of seasoned operating partners - former entrepreneurs and executives with extensive experience building, managing and optimizing successful small businesses across a range of industries.
  • Small Business Market Experience - The history and experience of EFSH’s managers partnering with companies in the small business market helps it to identify highly attractive acquisition opportunities and add significant value to operating subsidiaries.

EFSH is led by CEO Ellery Roberts. As the founder of 1847, Roberts brings over 20 years of private equity investing experience to the management team. During his career, Roberts has been directly involved with over $3 billion in direct private equity investments.

Prior to founding 1847, Roberts formed RW Capital Partners LLC, an investment manager approved by the Investment Committee of the U.S. Small Business Administration in 2010 to raise and manage a Small Business Investment Company.

Prior to founding RW Capital, Roberts was a Managing Director of Parallel Investment Partners LP (formerly SKM Growth Investors LP), a Dallas-based private equity fund focused on recapitalizations, buyouts and growth capital investments in lower-middle market companies throughout the US, where he was responsible for approximately $400 million in invested capital across two funds.

Previously, Roberts was a principal with Lazard Freres & Co. working in their Real Estate Principal Investment Area, where he was a senior team member involved in the investment of over $2.4 billion of capital.

Roberts worked at Colony Capital, prior to joining Lazard in 1997, where he analyzed and executed transactions for Colony Investors II, a $625 million private equity fund.

Roberts is joined by EFSH Managing Director Edward Tobin.

Tobin was previously a Director of Global Emerging Markets North America (GEM), where for 15 years he managed Special Situations and Venture investing for GEM’s Partners Capital Fund. Tobin was also a principal and on the investment committee of the MENA Fund, a Shari’ah compliant private equity fund which was a joint venture between GEM and VC Bank, itself a Shari’ah compliant bank based in Bahrain.

While at GEM, Tobin oversaw structured finance transactions in industries such as clean tech, consumer/retail, alternative finance, media, telecommunications, manufacturing, retailing, real estate and life sciences.

Prior to joining GEM, Tobin was Managing Director of Lincklaen Partners, a private family investment office.

Previously, he had been a portfolio manager with Neuberger and Berman, managing both pension funds and private client capital in the public equity markets. Prior to N&B, he was a Vice President of Nordberg Capital.

In addition to owning publicly traded shares of EFSH, investors can also participate in the success of the venture through preferred shares currently available through a Reg A+ preferred offering. The shares pay a 12% dividend and are a separate class of shares from the company’s shares currently trading on OTC Markets.

Full offering details are available in the company’s SEC filings:

https://www.sec.gov/Archives/edgar/data/1599407
/000121390019021621/f1a2019a3_1847holdings.htm

Have questions? Call a RedChip Specialist today at 1-800-RedChip to learn more.

 
Preferred shares pay quarterly distributions at 12% per annum rate.