The objective of the MCM Fund is to generate substantially above average risk adjusted absolute returns for investors. Minerva has identified and will focus its professional and investment resources almost exclusively on the for profit, vocational education industry, as it believes that the sector is about to embark on a multi-year recovery cycle. Furthermore, while Minerva believes that generally the sector is substantially undervalued, due mostly to a heretofore unfavorable macro environment, a need for consolidation among its fragmented service provider base, and a near universal investor-overreaction, the truly compelling risk adjusted investment returns will be generated by a highly selective, bottom-up investment approach.
Minerva will focus almost exclusively on the less efficiently priced universe of the second and third tier of companies, which may be either privately held or publicly traded at the time of the Fund’s investment. Minerva will endeavor to enter the positions at prices below what are deemed to be the target investments’ intrinsic values, often through privately negotiated transactions.
Minerva’s target investments are customarily companies with established marketplace positions, but ones which have experienced significant valuation dislocations, usually due to recent operational challenges. Minerva attempts to time the “inflection point” in the target investments’ operating performance, which historically significantly improved the underlying investments’ returns, while dramatically reducing the risks of ownership, as well as the general correlation to the broader markets.
Minerva’s principal strengths reside in duel features. First, it is able to identify deep pricing inefficiencies, as measured by the target companies extreme pricing discounts to their intrinsic value, in what is already an investor out of favor industry. Second, Minerva’s professionals frequently actively engage with the target company’s management, to improve their often sub-optimal operating performance, as well as help reposition the company for a more favorable overall assessment by Wall Street.
Consequently, Minerva is not only a highly-experienced research organization, but can also act as a change agent that catalysis revaluation of the portfolio holdings. The Minerva Team believes that its highly-experienced management team, extensive knowledge of practices and marketing strategies, deep relationships across the education vertical, as well as connections with the accrediting bodies and Department of Education enable it to offer portfolio companies valuable insights.
The overall sector of the for-profit education stocks peaked in 2010, followed by an 80% + broadly based collapse in the following three years. It has since generally stagnated, but Minerva believes that it is at a cusp of a sustained and secular upcycle. The upcycle will be particularly favorable for certain educational growth sectors, which address the students’ vocational needs most effectively.
Minerva believes that in private transactions it may be able to acquire companies at IBITDA multiple of low single digits, and, after also improving the holdings’ performance, exit the position at valuations of approximately mid digit to low teen IBITDA multiples. The IBITDA valuations for the group during the 2010 to 2013 upcycle reached mid digits.
As a “hybrid” fund, Minerva expects to participate and take advantage of extreme pricing inefficiencies in both the public in private markets. A typical holding period for publicly traded stocks will vary on multiple facts, but will seek optimal risk adjusted returns (with consideration of opportunity cost), as well as optimal tax efficiency for domestic investors. A typical investment time horizon for private portfolio investments also varies, but typically ranges between two and five years. Minerva does not expect to use margin debt to leverage its portfolios, as the Manager believes that it can achieve its performance objectives without exposing the Funds to greater risks associated with leverage.The Manager’s targeted annual ROI performance for a typical private holding ranges between 35% to 40%.