Insight certainty 4/5 debate potential 2/5

Conducting multi-year research enables investors to act instantly on target opportunities

Chuck Davis · Private Equity Masters 8 – Chuck Davis – Stone Point Capital (Capital Allocators, EP.207) · Aug 9, 2021 · at 22:02

Chuck Davis, CEO of Stone Point Capital, describes his firm's proactive, long-term outbound sourcing and evaluation philosophy.

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“We wanted to have this elongated, bass-ackwards investing where you do your homework ahead of time and you really know what you want to do, and then when the opportunity comes, you can move instantly, but when you see an opportunity that you haven't done the multi-year study of, then we're pretty plotting about that.”

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Disclosure
Stone Point has launched over 50 de novo startup investments
“We've done over 50 startups, and people say, why did you do a startup there? And the answer is, that's where the twenty-foot pole falter was.”
Chuck Davis Aug 9, 2021 ▶ 28:44 Private Equity Masters 8 – Chuck Davis – Stone Point Capital (Capital Allocators, EP.207)
Assertion Not checkable as stated
Following 2008, 29 of 31 evaluated independent Florida banks were technically insolvent
“There were 31 banks in Florida. Of any consequence that weren't owned by Citi, Bank of America, or someone from out of state. We called on 29 of those 31 banks. Every one of them was technically insolvent. Their liabilities were greater than the fair market va…”
Chuck Davis Aug 9, 2021 ▶ 37:15 Private Equity Masters 8 – Chuck Davis – Stone Point Capital (Capital Allocators, EP.207)
Assertion Not checkable as stated
PE firms compete with strategics using higher leverage and creative EBITDA adjustments
“Right now, private equity firms are very competitive with strategics, so businesses that are leverageable, people will put a lot more leverage often on businesses than we will. People often will adjust EBITDA in ways that are quite creative.”
Chuck Davis Aug 9, 2021 ▶ 46:49 Private Equity Masters 8 – Chuck Davis – Stone Point Capital (Capital Allocators, EP.207)
Insight
Operator quality matters more than underlying business economics
“The people are even more important than the business. There were many people that he backed in tough businesses that did well, and there were many people that were in good businesses that were not capable, and they didn't do well.”
Chuck Davis Aug 9, 2021 ▶ 7:38 Private Equity Masters 8 – Chuck Davis – Stone Point Capital (Capital Allocators, EP.207)
Disclosure
Stone Point deployed $6 billion into pre-existing relationships during COVID-19
“During COVID, Where you couldn't meet management teams. We did 17 deals. We put six billion dollars to work in 17 companies, and we knew those management teams on average for over nine years, and we knew those sectors and studied them on average over 15 years.”
Chuck Davis Aug 9, 2021 ▶ 29:52 Private Equity Masters 8 – Chuck Davis – Stone Point Capital (Capital Allocators, EP.207)
Assertion Supported
Private equity deal pricing is rising sharply from already high levels
“We're seeing pricing going up quite a bit from already high levels, and I think some of that is a function of Okay, here we go back to hopefully a normal environment. Some of that is interest rates and leverage capability, and some of that is just, okay, now I…”
Chuck Davis Aug 9, 2021 ▶ 30:38 Private Equity Masters 8 – Chuck Davis – Stone Point Capital (Capital Allocators, EP.207)
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