Note: for information on the Watchtower industry screening tool, please contact me here.
For small private equity firms, choosing attractive industries to focus time and effort is essential to success. Private equity firms don’t just invest in high tech. Industries can range from food services to Recreational Vehicle parks (see Context Capital Partners) and everything in between.
Looking at all the industries in the U.S., we can see how they have been growing over the last few years, and see how many industries are controlled by big business versus those that are fragmented and have small and midsized businesses in the industry:
As you can see, there are quite a few industries out there. Now let’s take a look at just those industries with high profit margins (>20% EBITDA):
INDUSTRIES WITH HIGH PROFIT MARGINS (>20% EBITDA)
As you can see, there are many fewer industries with high profit margins, but there is still a wide spectrum among those that are growing and those that are shrinking, and among those controlled by big business, and those with many small and midsized companies.
For those curious about the shrinking industry with high EBITDA margins – it is the Miscellaneous Publishing Industry (NAICS Code 511199), with $7.5 billion in sales, 1,100 firms, and negative growth of 32% per year.