We're Hiring!

Private Equity Analyst/Associate Opportunity

Fund Description: Catalus Capital is a multi-strategy private equity firm founded in early 2011.  Catalus recently raised its second fund, Catalus Growth Partners (CGP), which focuses on majority acquisitions of businesses with significant expansion potential. CGP typically utilizes no leverage and has an indefinite hold period for its investments. This unique approach makes CGP an ideal partner for operators with long term perspectives and an attractive option for owners seeking to protect their legacy.

CGP seeks middle-market US businesses that have an established track record of success and are poised to become industry leaders with the appropriate capital and resource support.  CGP targets fragmented industries that can be consolidated and that could benefit from the increased use of technology or innovation. Platform acquisitions will have an enterprise value of $25 million to $125 million and will have generated at least $4 million of trailing EBITDA.

Opportunity Description: The fund is seeking a full-time Analyst or Associate to help support investment evaluation, deal sourcing, due diligence, execution, and other related tasks. The position reports directly to the head of the firm. Responsibilities include analyzing, summarizing, and presenting investment opportunities as well as assisting in developing the deal flow network, investigating targets, and activities related to managing the firm. Experience in private equity, corporate M&A, or investment banking are required. An ability to work diligently in an unstructured and entrepreneurial environment is also desirable. The position will allow for significant responsibility in the deal evaluation and investment process. This is an opportunity to join a newly raised fund within an established private equity platform.

Catalus prides itself on cultivating a more flexible, entrepreneurial, and fun culture than traditional funds.

Responsibilities/Requirements:

Prior experience in an investment capacity within a private equity or growth equity fund, or investment banking.       

• Expertise on the deal sourcing, diligence, and execution process.
• Ability to quickly and effectively evaluate, summarize and present investment opportunities.
• Strong analytical skills to evaluate businesses, market opportunities, and industries.     
• Strong communication skills and keen attention to detail. Applicant will be required to draft investment memoranda and present ideas to the fund’s investment team, in addition to interact with investment bankers, advisors, and directly with senior management of targets.      
• Strong modeling and deal structuring skills. Applicant will be required to evaluate multiple potential transaction structures and assess the impact on potential investments.     
• Ability to work in a flexible and entrepreneurial environment.

Location: Flexible. The firm’s primary office is in NYC with a satellite in Greenwich, CT. The right candidate could work remotely part or full-time, if willing to travel to NYC regularly.

Pay: Competitive based on experience.

Resume Submission: phil@cataluscapital.com

My Biggest Lesson 5+ Years After co-Founding Catalus Capital

The most important thing is the people that you work with, above all else. 

It sounds really basic, right?  Before starting Catalus I had probably read dozens of books and articles that emphasized the importance of working with honest, diligent, and reliable people that are experts in their market niche.  But I never really understood what that meant until years of ups and downs working with a range of amazing individuals to downright crooks. 

In my business, investing with great people means that you can trust what you’re being told, and that you’ll get the full story independent of whether its good or bad.  It means that you can rely on your partner to do their best to fulfill their promises, even if you’re not watching over their shoulder.  It means that they know their business cold.  You’re not guaranteed success but you have the highest probability of achieving it.

On the other hand working with people that have low ethical standards or don’t have the drive to go the extra mile can lead to some pretty negative situations.  These are the people that may lie, cheat, steal, or look the other way.  Furthermore, they can suck all the fun out of investing for a living.

In some of our deals we’ve dealt with amazing people that achieved incredible feats through their dedication and abilities.  We feel honored to be working with those individuals and appreciate their efforts.  But you don’t know a person’s nature when you meet them.  You learn that over time, and its easy to miss the early clues if you’re not watching for them. We’ve been tempted by deals that look great on paper but give us the feeling that something is ‘off’.  Eventually, we’ve always been thankful for passing on those.  Its human nature to give people some benefit of the doubt when a grey area exists.  But as an investor, it’s important to limit that instinct in favor of always demanding the highest standards out of potential partners.  

Buckle Up. Everything Has Peaked

For the last few weeks at Catalus, the big topic of discussion has been about how bad markets across the board are looking, and about how its only going to get worse. A lot worse.

Everywhere you look, problems are brewing, with the biggest warning signals flashing from the credit markets. Everything ranging from Treasuries, to leveraged loans, to high yield are down significantly (the latter being at a 5 year low). Credit downgrades are at the highest pace since 2009 and by some measures high yield bonds are at 2009 levels. You can paint a prettier picture by stripping out energy, but the losses are still significant, and the leftover companies are the ones that benefit from decreasing energy expenses.

Corporate profits have peaked with margins and earnings down despite the decreasing energy costs. In the last few years profits have been driven by stock buybacks, cheap debt, M&A, and cost cutting. The first three will be choked off with contracting credit markets and rising interest rates, and there's only so much corporate fat you can eliminate before you cut to the bone. Meanwhile US wages are marching upwards and the dollar is relentlessly rising, which makes our exports progressively less competitive.

US housing looks OK, but not great. The prices in gateway cities have risen to stratospheric levels. They outperformed in the last market downturn, but the reverse will be true this time around. Some markets are substantially over supplied, like Miami, Manhattan luxury condos, and some parts of LA. We won't see a crash, but there will be a more typical real estate correction, with the hottest markets getting hit the hardest.

Outside the US, the picture looks even worse. Emerging Markets are struggling, with some of the major ones like Brazil and Russia in deep recessions. China is just muddling along despite the government's forceful efforts to grow, and Europe has stagnated since the last crash.

Meanwhile in the face of all this the Fed will likely raise rates.

What does a responsible steward of capital do? At Catalus we've been waiting for this type of environment for years. In the meantime we've seen many market participants make some incredibly risky bets that will surely unravel if our prognostication is accurate. There will be opportunities in 2016 to pick up cheap assets; we're eagerly waiting.

*Update 1/7/16: On January 6th, 2016 George Soros referred to the current environment resembling that leading up to the crisis of 2008.  Let's hope that things don't get as dire as he predicts Soros Bloomberg Article.

The Next Big Thing

Once every few years we at Catalus stumble upon a trend or industry that we believe will generate attractive investment opportunities for many years to come and in some cases meaningfully alter the world that we live in. Sometimes these trends are controversial or contrarian, while others are completely unrecognized by the public. In this case, there's an almost cult-like following, and yet still we feel that there is an under-appreciation of the magnitude of this new industry’s eventual impact.

For decades, small-scale real estate developers and speculators have struggled with the inefficiency and difficulty of raising capital for deals sized $100k to $10 million. This size bracket is too small for institutional investors and dominated by unpredictable high net worth individuals who aren't in the business of investing, but rather do it in their spare time.

On the other side of the equation are the tens of millions of high net worth individuals in the US and globally that have accumulated savings, but don't have the knowledge or contacts to expand their investment portfolios beyond the traditional options. These individuals see real estate acquisitions, renovations, and developments happening all around them during their everyday lives, but rarely have access to invest, and don’t have the expertise to analyze the opportunities that they are presented with.

Crowdfunding will change all of that. If you’re not familiar with the industry, a good explanation is HERE.

Crowdfunding will enable technology to revolutionize how capital is raised, first in the $100k-$10 million size range, and then in progressively larger transactions as market-leading platforms are accepted in the deal community. Technology will also streamline the due diligence and closing processes, creating more efficiency and opportunity. As a result, real estate operators will have reliable access to capital through crowdfunding platforms and individuals will be able to participate in transactions with risk/reward ratios typically unattainable through traditional methods (the kicker is that some of these deals are really good… and some are pretty horrible). 

We've spent the last year studying the industry, meeting with the management of the most sophisticated platforms, and investing in deals. We're likely some of the best informed individuals on crowdfunding, and we continue to be impressed with its potential. I've personally been investing in these deals since early 2014 with excellent results, and we have now built a multi-million dollar portfolio at Catalus.

More to come.

Catalus Capital Partners with Genesis RE Holdings to Acquire Distressed Property

Catalus Capital and Genesis RE Holdings have partnered to acquire distressed residential property in Southern Florida. The deal was structured as a $10 million revolving first lien loan from Catalus and an equity investment from Genesis. The capital will be used to acquire foreclosed homes at auction.

Catalus continues to seek additional special opportunity investments that would benefit from a flexible approach.

See our email distribution here.

Catalus Capital's Marek Olszewski speaks to The Deal

Catalus Capital's Managing Partner, Marek Olszewski, recently appeared on The Deal to discuss the fund's opportunistic real estate investment strategy. Catalus seeks to partner with market leaders in specific segments and geographies where market inefficiencies exist.

Please click here to see the interview.

What am I Reading (listening to) Now?

*Update 12/4/14
Zero to One by Peter Thiel
Corner Description: The co-founder of Paypal and early investor in Facebook describes his views on how to build a successful business.


*Update 10/23/14
How Google Works by Eric Schmidt & Jonathan Rosenberg
Corner description: Insights on Google and running a business from two of the company's leaders.


*Original Post 9/16/14
I read a lot, so I figured it might be interesting to keep updates on the latest...
Inside the House of Money, Top Hedge Fund Traders on Profiting in Global Markets by Steven Drobny
Corner description: interviews of successful global macro traders on their strategies and experiences.

On The Left Interview - Swimming Naked

Early this summer I had the great honor of being interviewed by Randy Schwimmer for his inaugural issue of The Lead Left. If you're in the middle market, you're probably intimately familiar with Randy from his former senior role at Carlyle's lending arm, and his famous On The Left newsletter.

I'd like to thank Randy for the opportunity to be a part of his new venture. The interview is below:


TLL: Marek, your firm is probably not familiar to many of us. Tell us about what you guys do.
MO: We are an investment fund that focuses on special situations. That definition is pretty broad. We look for transactions with unique characteristics, particularly those that are typically unsuitable for traditional investors.

TLL: What kind does that involve?
MO: We like situations that are distressed, have a certain level of complexity, an unusual geography, or a unique business model. We also like opportunities that require specialized due diligence or research.

TLL: Where do your investments reside in the capital structure?
MO: Starting somewhere in the senior debt, but after that we go up and down the capital structure. For example, we just closed a deal where we simply acquired 100% of the asset as an all-equity transaction.

TLL: Give us an example.
MO: We recently acquired a property called Sirenusa, a high-end condominium complex located in St. John in the US Virgin Islands. A bank down there had foreclosed on it. That and the unusual location was what attracted us. Because capital is hard to come by in the Caribbean, there’s limited competition for deals.

TLL: I assume there’s also a decent supply of distressed situations.
MO: Exactly. So an all-cash buyer – as we are – is attractive to sellers. No contingencies and a quick close. The bank had been holding on for five years, but with the property empty it was still bleeding money. We offered a quick solution and, most important, a business plan to get back to profitability quickly.

TLL: What other locations offer similar opportunities?
MO: We’re looking at businesses and assets in and outside the US. I would describe the targets as “tertiary geographies.” Today, as an example, I had a call with some Greek investment bankers…

TLL: There are some of those left?
MO: (laughs) Yes! We’ve also considered Spain and Italy, though each country has its own complexities and risks. As recent borrowing rates show, those areas are recovering but still need liquidity. We are also careful to find partners with expertise in those niches. We are not global experts.

TLL: Where do you find deals?
MO: From a wide variety of sources: investment banks, middle market boutiques, brokers, personal connections. Also LinkedIn and Axial. Everyone wants to create proprietary deal flow. We’ll reach out to local operators. For example, we’re looking at solar energy businesses in Puerto Rico. So we find out who’s there now, get a few names and call them to understand the local business environment.

TLL: Where does your capital come from?
MO: My partner is Michael Freeburg. He runs and owns Greenwich Wealth Management, a $1.5 billion Registered Investment Advisor. Catalus’s investors are some of his biggest clients.

TLL: And typical investment size?
MO: $10-40 million is a good range for us, although we’ve considered as much as $100 million.

TLL: What’s your hit ratio on the deals you review?
MO: We say No to about 75% of the deals we give a superficial review. Ultimately only about 1% of those that make it through the initial filter make it to closing.

TLL: Who are the larger players doing what you do?
MO: Fortress and Cerberus have sub-strategies similar to ours. The difference is their size and that they have people on the ground. We like to partner with folks on the ground.

TLL: Are you industry agnostic?
MO: Yes, with some exceptions. We avoid specialized sectors like oil and gas exploration, mining, bio-tech, pharma, and insurance.

TLL: Let’s talk about this frothy lending market. Does it hurt your business?
MO: It certainly means a difficult time finding opportunities. Each quarter of last year things got a little more difficult. Rates and spreads are coming down, leverage going up, credit standards deteriorating, and covenants disappearing. That hurts us, especially our credit strategy. The power on deal terms has shifted from capital providers to sponsors.

TLL: So you’re just waiting for the next recession.
MO: That would certainly help our business. As Warren Buffett has said, you never know who’s swimming naked until the tide goes out. Lots of aggressive stuff is being done by our peers that might end badly in a downturn.

Which is why, in the next few years or so, if a recession does come and the tide goes out, we hope to fill the resulting liquidity gap.

We're Hiring!

Catalus is growing and we are seeking to add to our investment team. We would love to hear from you if you meet the profile below.

Job Description: The fund is seeking a full-time Associate or Analyst to help support investment evaluation, deal sourcing, and other related tasks. The position reports directly to the head of the firm. Responsibilities include analyzing, summarizing, and presenting investment opportunities as well as assisting in deal sourcing, due diligence, and activities related to managing the firm. Preference will be given to those with experience in private equity, investment banking, bond/loan research, distressed investing, other investment research, or mezzanine/structured lending. An ability to work diligently in an unstructured/entrepreneurial environment is required. The position will allow for significant responsibility in the deal evaluation and investment process. This is an opportunity to get in at the ground level of a growing fund with significant expansion potential.

Responsibilities/Requirements:

• Prior experience evaluating leveraged buyout, growth capital and/or debt financing transactions is a plus. 
• Ability to quickly and effectively evaluate, summarize and present investment opportunities, often with little direction or oversight. 
• Strong analytical skills to evaluate businesses, market opportunities, industries, etc. 
• Strong communication skills and keen attention to detail. Applicant will be required to draft investment memorandum, present ideas to the fund’s investment team and interact directly with senior management of potential investments as well as investment bankers and advisors. 
• Strong modeling / deal structuring skills. Applicant will be required to evaluate multiple potential investment structures and assess the impact on potential investments. 
• Ability to work in a flexible and entrepreneurial environment. 

Pay: Competitive based on experience

When Dotting Your I’s and Crossing Your T’s isn’t Enough

It’s amazing the difference that one word can make in an 80,000 word document. Last month it came out that the fate of a $450m bond issued by Caesars Entertainment may be determined by an “and” that probably was meant to be an “or” in the loan documentation.

Read about the background of the story here:
http://www.bloomberg.com/news/2014-05-12/caesars-makes-and-four-letter-word-to-lenders-distressed-debt.html

http://www.bloombergview.com/articles/2014-05-13/caesars-and-the-450-million-and

It has often surprised me how little attention senior investment professionals pay to the intricate details of loan and investment documentation. The typical approach is to agree on the broad terms of the deal and let the lawyers and a junior member of the investment team handle the details. By the time the final redline is circulated days, weeks, or months later, the deal’s principal has moved on to the next transaction. But the minutiae of the documents are critical; they often are what save you, or bury you, in the event things don’t work out as planned. I feel that the common approach leaves a lot of potential value, optionality, or accuracy on the table.

For Catalus I personally read from beginning to end every investment related document that I sign or I will be bound to. I have hazy memories of one instance where that approach left me pulling an all-nighter because we had to close the investment the next morning. I find that level of involvement to be unusual in the industry and sometimes I get pressure to “just sign it already” because there are (often artificial) deadlines or people are fatigued from the legal process. But over the years I’ve been able to benefit our investors by catching errors and identifying areas where we can improve our position due to some extra scrutiny.

The Caesars example is pretty extreme. Would I have caught the “and” that was supposed to be an “or”? No Way. I’m assuming that this clause was buried somewhere deep into the agreement, and by the time I’d get to that page I’d be struggling to focus on what I was reading. Even in the context of this article I had to read the clause 2-3 times before I understood the issue. 

So maybe the typical approach isn’t so bad after all, even if you read every word you’re likely to miss stuff. But why not put in the effort to try to weed out as much as you can?

Catalus Leases Sirenusa to Inspirato with American Express

Catalus Capital is pleased to announce that it has entered into a long term lease of its Sirenusa Residences in St. John, US Virgin Islands. All 14 of Catalus's villas will now exclusively be available to members of Inspirato with American Express, a luxury travel club with over 400 premier properties, 100 destinations, and 7,000 members. The villas will remain listed for sale by Sea Glass Properties, who also brokered the lease.

Catalus Bought What? Where?

I’ve gotten a lot of questions lately about our most recent investment, and rightfully so.  The deal marks little resemblance to transactions that we’ve done in the past.  Our acquisition of the Sirenusa Residences in St. John, US Virgin Islands, is an example of the flexibility that Catalus has to pursue unique opportunities and of an evolution that our fund’s focus has undergone. 

When Michael Freeburg and I founded Catalus almost three years ago, we purposefully structured the fund so that we could evolve and react to shifts in the market.  Our goal was to always be identifying the most attractive risk/reward weighted opportunities for our investors. 

We originally set out with a focus on middle market mezzanine lending, as we believed there was an opportunity in an under-invested niche.  A massive change has occurred in the debt markets since our inception, which has proven our investment thesis to be correct, but also has caused it to be no longer valid.  Mezzanine lending has enjoyed tremendous performance in the last three years, resulting in a flood of capital to be raised by new and existing firms.  Our assessment of the market is that it is experiencing high competition, declining pricing, deteriorating credit profiles, and increasingly aggressive lenders – so basically everything that we try to avoid.

Catalus has evolved into a special situation focused investment fund which identifies under-served niches.  Here are some examples of deals we look at frequently:

• Distressed assets and businesses
• Bankruptcy
• Litigation
• Partner disputes
• Unique geographies and/or business models
• Companies focused on a specific and/or unpopular niche
• Bridge loans
• Cash flow light/asset heavy capital raises
• High level of general complexity

While we like to be in a debt position, we’ve been increasingly considering preferred equity and equity co-investment deals.  In some rare cases we’ll even consider acquiring something, as we did in St. John, but that won’t happen often. 

 

After all, who can resist the most prestigious property on the #1 ranked Caribbean island?  More details to come…

 

Catalus Capital Acquires the Sirenusa Residences in St. John, US Virgin Islands

October 2nd, 2013 - Catalus Capital is pleased to announce its acquisition of the majority of the Sirenusa Residences in St. John, US Virgin Islands. Sirenusa is a premier luxury resort featuring expansive views and top of the line finishes and amenities. The property is located near the island's finest dining, shopping, and beaches and St. John was recently ranked the #1 Caribbean destination by TripAdvisor.

Catalus is offering the units as vacation rentals and will consider individual condo sales. "We're excited about Sirenusa and about St. John. We believe that buyers can find deep value in the USVI for world class properties." - Marek Olszewski, Managing Partner

Get 25% off non-holiday bookings until Feb with code Catalus.

Notable Quotes

I read a lot, and I pick up a lot of great quotes along the way from investors, traders, researchers, and other interesting people.  Below is part one of my favorite quotes:

In risk assets you make 80% of your money, 20% of the time.  Jeffrey Gundlach

When you find yourself in a leaky vessel, switching boats can be more rewarding than bailing.  - Bill Ackman paraphrasing Warren Buffett

There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have insight to appreciate the incredible wonders of the present. - John Kenneth Galbraith 

What do you call a stock that’s down 90%? A stock that was down 80% and then got cut in half. - David Einhorn 

It was never my thinking that made the big money. It was always my sitting. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. - Jesse Livermore (from the book Reminiscences of a Stock Market Operator)

You learn in this business: It you want a friend, get a dog. - Carl Icahn 

Common sense is not that common. – Debatable Original Source

There is a significant difference between probability and outcome.  Things that are unlikely to happen occur all the time and things are likely to occur don't happen. -Howard Marks

What you measure is what you'll achieve. Jeff Smisek

Invest first. Investigate later. – George Soros

Based on my own personal experience… rarely do more than three or four variables really count. Everything else is noise. – Marty Whitman

Better 3 hours too soon than 1 minute too late.  - Shakespeare (about selling)

The four most dangerous words in investing are 'This time it's different.' – John Templeton

I am as proud of what we don't do as of what we do. - Steve jobs

It's All About Duration

I’ve been seriously concerned about the state of the credit markets for quite some time, as chronicled in my posts.  A dramatic reduction in interest rates in all classes of credit (Treasuries, leveraged loans, high yield, mezzanine, bank loans…) has been coupled with a significant deterioration in credit quality (manifesting as higher leverage and looser terms).  This is being driven by a number of factors including a wave of capital that has entered into the asset class.  Investors recognize corporate credit performed very well during the crisis and, given the Fed’s policies, are forced to move out in the risk curve to find suitable yield.  Much of this is well comprehended by students of the markets, but others may not understand that recent events don’t necessarily have historical precedent and could result in significant future disruption.

Let’s talk about duration.  It is the weighted average number of years it takes for a bondholder to get back the purchase price of that bond, including both scheduled interest and principal payments.  Duration is an indicator of a debt’s sensitivity to interest rates.  The longer it takes to get your money back, the more volatile price changes of the bond will be to interest rates.  The lower your current coupon, the slower you get your money back, the higher your duration, and the higher your sensitivity to changes in interest rates.  With interest rates and coupons at all-time historical lows, duration has become quite elevated, resulting in the market’s correlation to interest rates being higher than ever.  It’s helps to conceptualize this visibly.

Many market participants brush off the duration issue by claiming historically when interest rates rose risk spreads compressed, so a significant move in bonds prices shouldn’t be expected.  Maybe… but is this conventional wisdom really true and applicable? The risk spread measures the incremental yield generated for owning debt that is riskier than a Treasury bond with the same maturity.  Without even looking at the data, my first rebuttal is that those prices have moved up significantly in the last few years as a result of interest rate declines.  Intuitively the reverse should be true when they rise.  More concretely, interest rates and spreads have had positive correlation in the past.  For example, from 1950 to 1981 it was +.54.  We can also look at the last two cycles of Fed increases in 1994 and 2004.  In the latter, spreads tightened as the Fed hiked, but in the former spreads rose for almost two years after the Fed’s tightening began.* Finally, the correlation has been positive since April of this year. The chart below shows High Yield bond spreads and nominal yields being almost equal for the first time in history… sure to cause some surprises when rates eventually rise.

These are some of the fun things we think about at Catalus.  In addition to our core structured debt investments, we’ve been spending a lot more time on preferred equity and equity co-investments.  We’re always happy to consider interesting deals so send ‘em our way!

** Morgan Stanley

*Morgan Stanley

The Myth of the Underfinanced Lower Middle Market

Over the last year there has been a consistent theme communicated by the larger private equity and alternative investment funds: there is a significant under exploited opportunity to invest in smaller companies. Pursuing a more attractively priced market seems like a perfect solution when facing tepid deal flow and a highly competitive market where substantial capital has been raised.  However, these funds do not appreciate the fact that this price differential exists for a reason.  Investing in smaller companies entails a unique set of risks and this segment is already highly efficient.

The lower middle market has lower acquisition multiples and more expensive financing, but it is more risky for a myriad of reasons.  Smaller companies often find themselves with significant customer or supplier concentration, do not have robust accounting systems, rely heavily on one or two key individuals, have limited ability to invest to maintain their competitive advantage, and don’t have the benefits of economies of scale.  Additionally, one cancelled order or the bankruptcy of a key customer can have a draconian impact on the company.

In my opinion the most significant characteristic of the lower middle market the mega funds are underappreciating is the competition.  It is one of the most efficient markets in the world, despite common anecdotal assertions to the contrary.  There are thousands of lenders serving this sector including banks, second lien lenders, unitranche providers, mezzanine funds, sale/leaseback firms, and other specialty finance companies.  Countless private equity firms and strategic acquirers are actively seeking to buy smaller businesses.  The SBA’s (Small Business Administration, a federal agency) SBIC program has become a massively popular structure and offers a plethora of financing options to creditworthy companies.  It provides heavily subsidized long term financing to specialty and mezzanine lenders that target the lower middle market.  Today there are 300 SBIC's managing $17 billion. 

I view this trend of larger funds turning to smaller company investments as an impulse response to difficult market conditions.  Ironically, Catalus is currently facing the same challenge.  Given the flexibility in our fund mandate we've decided to pursue larger and more creative deal structures, keeping in mind, of course, the grass is always greener…

Passion

Marek's 2012 Review and 2013 Outlook Interview

I was recently intereviewed by AxialMarket for their 2012 Review and 2013 Outlook Report.  You can read the interview below and get the report here.

Tell me a little about yourself and Catalus.

“Catalus is an industry agnostic lending fund that invests throughout the capital structure, including mezzanine, second lien, and subordinated debt. We also offer ‘special situation’ senior debt, which includes alternative opportunities -- unique geographies, business models, industries, or just atypical circumstances. We typically write checks of $5 to $25 million and invest in the US, Canada, the Caribbean, and Europe.”

How did 2012 go for Catalus?

“Depending on how you look at it 2012 was both a great year and a difficult one. From a returns perspective, we're happy with our performance. We are making solid risk adjusted returns for our investors and are very happy with our current portfolio of businesses.”

“From the new capital invested perspective, 2012 has been more difficult. While we did make a few investments, it was fewer in number and smaller in size than desired. Since we are a lender, this was a result of interest rates continuing to compress and the increased flow of capital into debt markets. Debt has been performing well -- it is a very competitive environment.”

“Interest rates have continued to come down throughout the year. While this is good for borrowers, it is bad for lenders. The lowering of rates has gone against the lending community.”

How will interest rates change in 2013?

“It’s hard to say what will happen to interest rates in 2013, but the consensus is that the rates will stay low throughout the year. I still have the hope that the economy will improve and rates will start to rise, helping to normalize credit conditions.”

How did it go for the entire industry?

“M&A was pretty weak in 2012. There were a few glimpses of some larger transactions, but there was no sustained, frequent M&A activity.”

“On the other hand, the high yield credit markets were robust. But this poses a challenge -- how can credit be robust if there are no acquisitions? The answer is dividend recaps, refinancings, and a little M&A. You have this interesting dynamic of a very robust, almost record breaking credit market with an underwhelming M&A environment.”

“Interestingly, the amount of equity going into LBOs is definitely on the rise. PE firms are using less debt and relying on senior debt or unitranche facilities and less mezz or subordinated debt. In order to get that type of capital structure, the firms are relying heavily on high-yield and loan markets.”

Valuations to rise?

“The most recent data seems to suggest that valuations will actually come down in 2013. That could be a result of the uncertainty in economy and regulatory environment -- if you buy a business, you have to price in that risk.”

“In much larger transactions multiples remain high, but as you get into lower-middle market, the multiples are pretty reasonable -- we see a fair amount of deals 5x-7x EBITDA.”

How are you thinking about 2013?

“I don’t see 2013 as a big turning point for activity. However, I do think January will be very busy. After a significant holiday -- like the one this year -- there tends to be a spike in new activity. I think people will return in January to find many new deals and will be quick to jump on them.”

“I am less concerned by the uncertainty than others.  I believe that there will be some clarity in early 2013 -- the two parties cannot continue going back and forth for six months. Once some agreement is made, either positive or negative, activity will continue.”

What do you mean by positive and negative?

“A positive outcome, given the current situation of anemic growth, growing taxes, and high spending, would be the two parties meeting somewhere in the middle.”

“A negative outcome would be if the current stalemate continued and the immediate cuts came into play. The cuts would create a huge drag on the economy. Although, it could create some opportunities for people like us who are willing to look at distressed deals and be opportunistic.”

How will Europe fit into the equation?

“Europe is particularly interesting because there are fits and starts of panic. I think 2013 will see some repeat of the panic of 2012. It was like when Bear Stearns went down -- there was a quiet for six months and then Lehman went down.”

“While there hasn't been any real solution to the European problem, I believe Europe will make its way out of the current crisis. Their dedication to stick with the Euro has helped spur some markets and in 5 or 10 years, recovery will be evident.  They may lose a country or two out of the Euro in the process, but it will likely recover.”

How will Europe impact the US?

“Since we are such significant trading partners, there is definitely an impact, but it all depends on how problematic the situation becomes. There are several countries in recession now. If that spreads to other countries or worsens, it could have a significant impact on the US.”

“We have some industries that have are particularly strong in the US -- like energy and technology. The growth in those areas can help offset some of the pain that we feel from Europe.”

Why tech?

“The US has demonstrated global technology leadership for some time now. There are so many innovative companies just beneath the surface that will likely become immense successes. While not all are success -- i.e. Groupon -- there is undeniable innovation. Technology in the United States is almost perennially a bright spot.”

Anything else I should ask you?

“In any environment, it is an investors job to find opportunity. Whether there is a recession, a bubble, rapid growth, or a stable economy, it is our responsibility to find places where we can invest safely and generate strong risk-adjusted returns for our investors.”

“Our sweet spot is our ability to find unique opportunities that are either overlooked or avoided by the broader market.”

Catalus Capital Closes Four Investments in 2012 and Seeks New Opportunities

Catalus Capital is pleased to announce that the fund made four investments during the course of 2012 and continues to be active in the market. "We're enthusiastic about the companies that we invested in during the last year and about the partners that we are working with," commented Marek Olszewski, the firm's Managing Partner, "we have significant additional capital to deploy in 2013." Catalus benefits from a highly flexible fund mandate that allows it to be an effective alternative financing source.

We're Hiring!

Catalus is growing and we are seeking to add to our investment team. We would love to hear from you if you meet the profile below.

Private investment firm seeking Associate or Analyst to help support investment evaluation, deal sourcing, and other related tasks. The position reports directly to the head of the firm. Responsibilities include analyzing, summarizing, and presenting investment opportunities as well as assisting in deal sourcing, due diligence, and activities related to managing the firm. Experience in private equity, investment banking, bond/loan research, distressed investing, other investment research, or mezzanine/structured lending is required. An ability to work diligently in an unstructured/entrepreneurial environment is essential. The position will allow for significant responsibility in the deal evaluation and investment process. This is an opportunity to get in at the ground level of a growing fund with significant expansion potential.

· 1-4 years of experience evaluating leveraged buyout, growth capital and/or debt financing transactions.
· Ability to quickly and effectively evaluate, summarize and present investment opportunities, often with little direction or oversight.
· Strong analytical skills to evaluate businesses, market opportunities, industries, etc.
· Strong communication skills and keen attention to detail. Applicant will be required to draft investment memoranda, present ideas to the fund’s investment team and interact directly with senior management of potential investments as well as investment bankers and advisors.
· Strong modeling / deal structuring skills. Applicant will be required to evaluate multiple potential investment structures for each potential opportunity.
· Ability to work in a flexible and entrepreneurial environment.

Candidates can submit their resumes to marek@cataluscapital.com.