At Sokrates advisors, we have been reviewing the number of mid-cap due diligences we have completed in the past few years. We mean commercial, strategy, buy-side due diligence work. We came up with over 150. There must be at least 20,000 pages or more, way more, maybe. This has to be some meaningful body of knowledge. There must be a lot in there, right?
But some things are not there, in these 150 or so reports: the big strategy concepts. There is nothing like: differentiation, differentiation by the cost, by quality, competitive advantage; nothing like unique value proposition, unique selling proposition, unique capabilities, etc. Nothing of the sort. Why is that?
It is because hardy anything is unique in the world of midcap and small cap. Out of these 150 companies or so we have analyzed, investigated, may be only 2, or may be really none, have some claim at uniqueness. All the other companies, the remaining 150 or so, look like some other companies. At best they are one of a few, and more often than not, they are one of many.
So the concepts of big strategy do not work here. It may be because big strategy concepts have been designed with big and unique companies in mind? Coca Cola? Nike? Google? Apple? Intel? But this is not our world; this is not the world of mid-cap and small-cap private equity.
Let’s take an example out of the 150 or so: heating components. We have worked on some of these manufacturers: they make heating components for other industries, like aeronautics, automotive, nautical, nuclear, energy, oil and gas and so on. There are a few of those in almost every developed economy: some in Germany, a few in France and in the UK; quite a few more in the US and another fairly large group in China and Japan. And since not many of those export to Latin America, there must be some in this continent too, making and selling locally.
Another example: technical joints. There are many and different technical joints, but no matter how you slice the market, there are always a fairly large number of companies manufacturing any kind of joints. Medical devices: prostheses, beds, medical mattresses, etc. It is the same. Think of knee or hip prostheses. There are a few large companies in the US, many smaller companies throughout Europe and many more throughout the world, including Japan, India, China, Russia, etc. Nothing unique here, sorry.
And yet another example: semi-conductor design. There have been a few transactions in Europe in embedded semi-conductor design: a few in France, in Germany and in the UK. Many more companies play on this market in the US, India and elsewhere in Asia. It is a very large world indeed, with one thing missing in it: uniqueness.
This is what they all have in common: a distinct lack of uniqueness.
Instead, something else is typical: a few companies in large national markets, a few more in the world and then even some more at the periphery, doing similar things, but not quite the same. This is our world, the small and mid cap – a world with a distinct lack of uniqueness.
How do we think about buying companies and creating value in this world? If we do not use big strategy, what do we use? This is what this blog is about: small strategy, strategy for a world with distinct lack of uniqueness – and some other things.