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Investment Process

Bernzott Capital Advisors utilizes a bottom-up investment process and applies a quality-first approach to value investing. We build portfolios of companies which exhibit high quality characteristics as we believe these companies can compound investment returns over long periods and prove resilient in downturns. Attractive business attributes and financial metrics which we believe support long-term investment returns include: market leadership; pricing power; favorable industry structure; recurring revenue or subscription model providing visibility; high margins and returns on capital; financial flexibility; and strong management with a long- term view.

We believe a concentrated approach is superior because it allows our best ideas to have a significant impact on returns and should lead to market outperformance. We seek long-term investment returns and resist short-term trends and momentum. Portfolios are constructed without regard to the sector and industry weighting of its benchmarks.

We assess valuation through a variety of methods including discount to market multiples (enterprise value/free cash flow, price/earnings, enterprise value/EBITDA, among others), a "sum of the parts" valuation and/or a private market valuation based on comparable transactions. We also consider a discounted cash flow (DCF) valuation with conservative operating assumptions and discount rates.

These analyses result in a targeted purchase price that is a significant discount to our estimate of fair value. We believe this methodology ensures that a margin of safety exists prior to purchase. Sometimes, it is short-term volatility in a company's stock price that drives the valuation discount, enabling us to initiate a position. A long-term investment horizon empowers the team to look beyond the market’s myopic concerns in pursuit of capital appreciation.

Execution of our process involves a comprehensive evaluation of company and industry material, discussions with management, financial and valuation analyses, collaborative group discussion, investment committee review, and patience.

We offer two investment strategies for institutional clients. Our US Small Cap Value strategy consists of 25 - 35 holdings with market capitalizations at purchase within the range of the Russell 2500 Value index. Our US All Cap Value strategy consists of 35 - 45 positions with market capitalizations at purchase greater than $250 million and unconstrained thereafter.

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