Brazos Case Study

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Brazos Case Study 1. Brazos’ investment strategy focuses on the ‘lower end’ of the middle market for opportunities to buy out companies valued in between $50 million and $250 million with ‘demonstrable cash flow’, well defined niches and a quality management team throughout the nation. However, there is a strategic inclination towards firms in Texas and the Southwest region as Brazos believes that it is underserved by LBO firms which may be taken advantage of. As a first time fund, its access to two potential rounds of capital at $250 million and $200 million respectively allow Brazos to pursue its ‘low-end, middle market’ strategy. Despite scouting for smaller opportunities, a first round of $250 million funding may not be sufficient for Brazos to invest in any more than a few firms which gives them limited scope for diversification. This places greater pressure on a first time fund and in particular, Brazos’ motivation to add value by simply promoting organic growth in cash flow and operational efficiency in the hope of enhancing industry scale. Additionally, the existence of dependable cash flow and management make it easier to acquire debt financing and increase leverage which suits a first time fund. Furthermore, Brazos’ previous relationships and experience in the market allowed it to mitigate aspects of first fund bias which inhibit the entry of many prospective VC firms into the industry. Brazos’ GTT method is one of its points of differentiation which appear limited in its application to a variety of firms outside the ‘family-owned business’ model. It gives sellers an exit option to cash out if they desire, while still allowing them to retain significant equity ownership. With a 49.9% equity stake structure, Brazos still has significant board representation and the scope to contribute to the important decisions of the firm. Thus the GTT offers
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