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Matt Morris explains how Dry Line Partners unlocks value in underperforming software businesses
Key Takeaways
- Dry Line Partners focuses on underperforming software businesses with an enterprise value of around $100M, often with low customer concentration and high retention rates, and buys them at deep-value prices.
- The firm aims to improve the efficiency of these assets, often taking advantage of opportunities to buy unloved or underperforming divisions from large conglomerates at attractive valuations.
- Dry Line operates on a deal-by-deal basis, offering investors visibility into the target investment.
Transcript
My name is Matt Morris. I'm the managing member of Hampton River Partners and the managing member of Line Partners LLC and based here in Austin, Texas.
With my new venture, Dry Line Partners, we're focusing on targeting underperforming software businesses that are right around $100 million of enterprise value. The strategy is to buy them at deep-value prices. So we're looking to pay anywhere from call it 1 to 2 times sales. Anywhere from 4 to 7 times pro forma EBITA minus CapEx. And buy assets that are very cash generative. Move them to Texas and operate them more efficiently than they're being operated right now. A lot of these assets are either languishing at the end of private equity and VC fund lives. So both the private equity firms and the VC funds realize these companies aren't going to be huge drivers of performance. So they're willing to sell them at not maximum valuation. And they basically want them off the books and then move on to other investments.
We're also looking at buying assets that are unloved within large corporates. So oftentimes you find big, big companies, big conglomerates that have, you know, multibillion-dollar market caps, and they have these divisions that are trapped inside of them that are sort of languishing. They're either bought by a corp dev person that was there, call it, 8 to 10 years ago, and that person is no longer at the company, or they're just a drag on earnings. So they are willing oftentimes to blow out those companies at attractive valuations just to get them off of the books. With Dry Line, we're looking to take advantage of those two phenomenons. Invest in these assets, operate them more efficiently, and then try to grow them.
We will be doing everything on a deal-by-deal basis. So as an LP, you will most likely get visibility into the exact company that we will be buying. It won't be a blind pool where you have no visibility into what we'd be investing in with what we're doing. You have visibility both into the underlying company we're going to be investing in, and you have visibility into, you know when the cash is coming back. And this is in software businesses that have, generally speaking, very low customer concentration, thousands of customers, really high retention rates. And we're going to be operating them probably from, you know, one of the most cost-effective, exciting economies in the country, which is Texas.
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