This article by Matthew Sweeney is excerpted from a letter of Laughing Water Capital.
IES Holdings (IESC) entered our portfolio as a smaller position.
The company is a conglomerate with business in four verticals – Commercial & Industrial, Communications, Residential, and Infrastructure. While these businesses should benefit from both cyclical and secular tailwinds in the years to come and are thus interesting in their own right, what makes an investment in IESC more interesting is that it is almost 60% controlled by Jeffrey Gendell, an excellent capital allocator. Gendell is the founder of Tontine Capital, where he previously compounded capital at ~40% a year for a decade. Further, the company has approximately $400 million in NOLs, meaning that Gendell will be able to allocate IESC’s earnings under a tax shield, which should drive considerable shareholder value.
Credit for this idea belongs to Chris Colvin of Breach Inlet Capital, who first brought it to our attention.
Disclaimer: This document, which is being provided on a confidential basis, shall not constitute an offer to sell or the solicitation of any offer to buy which may only be made at the time a qualified offeree receives a confidential private offering memorandum (“CPOM”) / confidential explanatory memorandum (“CEM”), which contains important information (including investment objective, policies, risk factors, fees, tax implications and relevant qualifications), and only in those jurisdictions where permitted by law. In the case of any inconsistency between the descriptions or terms in this document and the CPOM/CEM, the CPOM/CEM shall control. These securities shall not be offered or sold in any jurisdiction in which such offer, solicitation or sale would be unlawful until the requirements of the laws of such jurisdiction have been satisfied. This document is not intended for public use or distribution. While all the information prepared in this document is believed to be accurate, Laughing Water Capital, LP and LW Capital Management, LLC make no express warranty as to the completeness or accuracy, nor can they accept responsibility for errors appearing in the document. An investment in the fund/partnership is speculative and involves a high degree of risk. Opportunities for withdrawal/redemption and transferability of interests are restricted, so investors may not have access to capital when it is needed. There is no secondary market for the interests and none is expected to develop. The portfolio is under the sole trading authority of the general partner/investment manager. A portion of the trades executed may take place on non-U.S. exchanges. Leverage may be employed in the portfolio, which can make investment performance volatile. The portfolio is concentrated, which leads to increased volatility. An investor should not make an investment, unless it is prepared to lose all or a substantial portion of its investment. The fees and expenses charged in connection with this investment may be higher than the fees and expenses of other investment alternatives and may offset profits. There is no guarantee that the investment objective will be achieved. Moreover, the past performance of the investment team should not be construed as an indicator of future performance. Any projections, market outlooks or estimates in this document are forward-looking statements and are based upon certain assumptions. Other events which were not taken into account may occur and may significantly affect the returns or performance of the fund/partnership. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of LW Capital Management, LLC. The information in this material is only current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only current opinions of Laughing Water Capital LP, which are subject to change and which Laughing Water Capital LP does not undertake to update. Due to, among other things, the volatile nature of the markets, an investment in the fund/partnership may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal and tax professionals before making any investment. The fund/partnership is not registered under the investment company act of 1940, as amended, in reliance on an exemption there under. Interests in the fund/partnership have not been registered under the securities act of 1933, as amended, or the securities laws of any state and are being offered and sold in reliance on exemptions from the registration requirements of said act and laws. The S&P 500 and Russell 2000 are indices of US equities. They are included for informational purposes only and may not be representative of the type of investments made by the fund.
About The Author: Matthew Sweeney
Matthew Sweeney is the Founder and Managing Partner of Laughing Water Capital. The firm employs a concentrated equity strategy while focusing on companies that are dealing with some sort of structural or operational difficulty that is judged to be easily solved by an incentivized management team if given enough time. Matt began his career at Cantor Fitzgerald where he focused on equity idea generation for institutional clients. He received a Bachelor of Arts degree in History from the College of the Holy Cross, and a Masters degree in International Relations focused on the Middle East and Terrorism from Seton Hall University. Matt is a Chartered Financial Analyst (CFA), and former Vice Chair of the New York Society of Security Analysts (NYSSA) Value Investing Committee.
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