What One PE Firm Looks for in a Target Company

Delos Capital is back in the market looking to raise its second private equity fund. The lower middle market firm, launched by former Vision Capital and Apollo Global Management executive Matthew Constantino, is targeting $300 million for its sophomore fund.

Founded in 2013, the New York-based firm has a nine person team, with four deal partners, and focuses on a variety of sectors including industrial chemicals and packaging. Sanjay Sanghoee, CFO, COO, and CCO,, says Delos focuses on “meat and potatoes-type businesses with stable cash-flows. These companies are often family-owned and in sectors where we have downside protection. We are investing in sectors we know or we have a track record in or it’s a business we can easily understand. We do not invest in anything that has regulatory risk like healthcare. We stay close to our knitting,” says Sanghoee.

Although the firm’s deal strategy is flexible, the firm will typically acquire a platform company and complete add-on acquisitions to attain scale. A typical hold period for the firm is three to five years. “We will do anything we really need to make our portfolio companies stronger, which can include operational improvements or helping the companies find ways increase earnings,” says Sanghoee.

Just last year, Delos acquired Sage Metal Limited, a Delhi, India-based company that manufactures speciality metal products and then through Axial’s network acquired Trident Components to add on to Sage Metal.

Sanghoee adds that he and his partners thrive when they are working on complex situations. “We adapt very well to companies that have issues like a capital structure issue or a hard family dynamic. We are good at solving those types of problems. It’s really a niche for us because these companies are too small for middle market private equity to have interest, but the problems are often too complex for smaller private equity firms to handle. We have a unique experience with our team coming from the larger market and understanding of lots of nuanced situations,” says Sanghoee. “Our team honed their skills on bigger deals, but truly understands the lower middle market and this is where the opportunity to generate returns lies.”

Delos closed on north of $250 million in 2014 for its first fund. The firm’s investors were the usual suspects: university endowments, family offices, and multi shop institutional offices that have pools of capital. This is the mix that’s expected in the firm’s Fund II as well.

Delos has nine platform acquisitions in Fund I, including a specialty coating business, business process outsourcing company, and a packaging company. The firm is currently doing a roll up strategy for its United Flea Market (UFM) platform. Based in Denver, Colorado, United Flea Markets owns and operations flea markets across the United States. Delos acquired UFM in October 2015.

“These are not parking lot flea markets. These are shopping experiences and entertainment for the whole family. They have stable steady cash flow and there are probably another 1,200 actionable flea markets in the country for us to purchase. These flea markets have a certain scale and we have identified good ones and we are adding to the main platform. With scale there are synergies from a buying and operational perspective,” says Sanghoee.

Delos was originally interested in the flea market industry because it’s largely untapped. “No one else is doing this. It’s atypical, yet a good business,” he says.

Going forward the firm will look to keep the same cadence of deal activity. “Our deal flow comes through a network of investment banks, law firm, our investors, and the deal databases. This works well for us. We are not trying to do 20 deals a year, but more like two or three, depending on what we see. Once we find a good platform we then build it up,” says Sanghoee.

Sanghoee is optimistic about the lower middle market going forward. “It’s always competitive and you have to be on your toes and keep an eye out for what’s going on in the market. We never take that lightly. We never rest and say we are going to take it easy, but given our specialized nature and where we invest, there aren’t huge amounts of competition and that’s good for us as we move forward,” says Sanghoee.