SSC From Ordinary to Extraordinary
As we analyze the private equity landscape at the close of 2020, it’s worth noting one firm that has brought a unique approach to a number of noteworthy deals in the second half of the year: Sole Source Capital.
In 2016, David Fredston founded Sole Source Capital, or SSC, based on a core thesis: that there were overlooked opportunities to rapidly transform the operations of industrial companies in the lower-middle market. Since then, SSC has built a team of experts to execute this operational, data-driven approach, delivering impressive returns with its first investment fund .
Speed is a through-line for SSC’s overall approach and individual deals, from due diligence to M&A to operations. The firm aims to complete operational changes many times faster than the industry average, enabling rapid value creation. This focus on operational advances, at speed, in the lower-middle market, has enabled Sole Source Capital to set itself apart from other private equity firms, validating David Fredston’s original vision .
Finding the Right Opportunities
For SSC and Fredston, every deal starts with thorough sourcing based on hard data. A team of origination experts combs through a range of different data sources and taps a deep business network to identify undervalued companies in overlooked markets that are a good fit for the firm’s investment approach.
A survey of recent deals shows that these are generally family- or founder-owned companies in industrial sub-sectors, like packaging, supply chain and logistics, or food distribution. These kinds of companies are often primed for operational improvements and growth — but also commonly missed by investment firms focused on “sexy” industries or huge turnaround stories.
Once the firm has identified a good fit, the M&A team completes forensic due diligence, thoroughly and quickly. The M&A team also works closely with the Operations team to enable strong engagement from the start, including deep collaboration with management on a rapid cadence. This approach sets apart Sole Source Capital, consistent with David Fredston’s founding philosophy.
Transformation at Speed
After a deal is made, the SSC Operations team aims to transform businesses at a much faster pace than the industry norm. To achieve this, the team focuses on the largest operational levers in each company, applying analytics and dashboards to track progress. Throughout the process, SSC’s operational experts engage management in a regular, rapid cadence-sometimes daily or even hourly-to ensure changes are implemented with the necessary speed.
The team’s overall goal is to take operations to the next level as quickly as possible. From the first day of engagement, SSC comes to each company with a prepared plan for how to begin driving progress in the first several months. The team then builds on this plan with further strategic planning to rapidly grow the business and deliver results. This helps to create a dynamic enterprise that is well-positioned for the next stage of growth.
Sole Source Capital has successfully carried out this approach across a number of different companies and industrial sub-sectors. The results speak to the untapped value and opportunities that exist in the lower-middle market, for those with the expertise, tools, and connections to identify and pursue them. As SSC and David Fredston turn to their second fund, the firm appears poised to continue delivering strong returns and consistent performance with its differentiated approach.
About Sole Source Capital
SSC is built around a unique strategy for identifying opportunities and creating value in the lower-middle market. SSC targets North American industrial companies with certain key characteristics that signal a strong fit for the firm’s data-driven, operational approach. With a team of world-class experts who have skillsets expressly tailored for this investment strategy, SSC has delivered strong performance with its first investment fund and is currently completing fundraising for a second fund.
