A substantial investor that brings value and goes beyond investing financial resources by bringing wealth of experience, industry contacts and operational expertise.These investors may help to improve business operations or provide expertise in acquisitions. A strategic investor could be an individual who has led several businesses in similar industries
Increasing margins usually translates to increasing cash flows for the business, higher retained earnings thus giving the business ability to invest and acquire more income generating assets.
Sale of Under-Performing Assets(Divestments)
Also known as Divestments, a business may choose to sell off under-performing assets to streamline its business focus, achieve higher efficiency or improve margins. Proceeds can be use to pay off existing debt or invest in capital expenditures.
Change in Management
In many instances, a strategic or activist investor can push for a change in management (usually the CEO) and hire an executive who has a proven track record and expertise in the industry. This is highly crucial especially if the existing management has been overpaid while severely under-performed all expectations.
Launching New Range of Products or Venturing into New Markets
Common in consumer retail businesses, this strategy can help increase revenues and steer the business into new direction. However, this can also be very risky with poor execution.
Change in Business Climate and Sentiment
A good example is the oil and gas sector, most of you would be aware that oil and gas related businesses are struggling at the moment, however, conditions might improve as the price of oil recovers. Commodity related businesses or other cyclical businesses are good candidates but a business has be to financially sound with strong cash positions to survive tough economic conditions. Visit my post to help you look for companies with strong balance sheets.
Next topic: Things to consider before investing in Deep Value stocks
Share your thoughts on this post and leave a comment below. Spread the knowledge with everyone by liking and sharing this post!
For more updates, like my Facebook page here !