If you've ever heard the phrase "private equity" and immediately pictured a room full of suits in a Manhattan high-rise loading up a perfectly good business with debt, slashing headcount, and then flipping it three years later for a quick return, you're not wrong. For a long while that was the dominant model in the PE space. But it's not what we do at City Different Investments in our Small Business Acquisition strategy.
I say that not to throw shade at traditional private equity. Institutional PE can serve a meaningful purpose in the capital markets. But we operate differently in almost every meaningful way, and we wanted to tell you how and why (especially for business owners who are evaluating their options and wondering whether we're just another buyer with a fancy pitch deck).
This might be the single biggest structural difference between us and a traditional private equity buyer. Most PE deals are built on leverage. The whole model depends on it: borrow money to buy the business, then use the business's own cash flow to pay down the debt until it's time to sell. It certainly can work, but it also usually puts enormous pressure on a business to perform at a level it may not have been designed for.
We use little to no debt. City Different Acquisitions acquires businesses using primarily equity capital. That means no debt service burden from day one, and no lender looking over our shoulder when we make operating decisions. We're buying businesses we believe in all the way down to the fundamentals. The financial structure isn't doing the heavy lifting.
Traditional PE funds are structured products. They raise a pool of capital and deploy it within a fixed window. Then they're on a defined clock to return the capital to investors… usually seven to ten years (though that window is increasingly stretching further and further). That structure creates pressure: pressure to deploy, pressure to exit.
Patient capital works differently because we’re not racing a clock. If a business we own is performing well and taking care of its people and customers, we don't need to manufacture a liquidity event to satisfy fund mechanics (although we will consider exits opportunistically). We can hold it and can keep owning it as long as it keeps earning its keep.
Our primary goal with the City Different Acquisitions strategy is to buy cash-flowing businesses and return capital to our investors through quarterly distributions, not one single liquidity event at the end of a holding period.
Most of the sellers we interact with on a daily basis are people who built something from scratch and ran it for 20 or 30 years; now they’re thinking about what comes next. They built their businesses to serve a community and create something they could be proud of.
That context matters enormously. When a founder-owned business goes to market, the highest check isn't always the best outcome. Sellers in this category often care deeply about what happens to their business after they leave. They want the people they hired to be treated well after the deal closes, and they want what they built to still mean something a decade later.
We come in as stewards with no turnaround plan attached. Our job is to preserve what made the business great, with the resources and runway to grow on its own terms.
Geography is a deliberate bet for us. The Southwest is home to a large and growing number of founder-owned small businesses whose owners are approaching retirement age with no clear succession plan. This can present a great opportunity for the right buyer to step in.
We're based in Santa Fe. We understand this market in a way PE firms in major metros might never. We know the communities, and we've spent years building relationships here. Geography is a moat for us, and we’ve dug said moat intentionally.
If you own a business in the Southwest and you're thinking about what comes next, I'd encourage you to think carefully about what you actually want out of a sale. If maximizing the purchase price is the only variable that matters, there are buyers who will compete aggressively for that. We'll be honest with you about whether we're the right fit.
But if you want a buyer who will take care of what you built with no intention of saddling the business with debt (or flipping it again in three years), we think we’re worth a conversation. That's the version of private equity we're trying to build… and we think the market needs more of it.
The information contained in this communication has been designed for general informational, illustrative, and educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. Moreover, the information provided is not intended to provide any investment advice whatsoever. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product, or any non-investment related content, made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. No discussion or information contained herein serves as the provision of, or as a substitute for, personalized investment advice. To the extent that a reader has any questions regarding the applicability above to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing. City Different Investments is neither a law firm nor a certified public accounting firm and no portion of this content should be construed as legal, tax, or accounting advice.