Ideally, Alaris’ Partnership Criteria includes:
An Old Economy Style of Business
These companies typically provide essential services or products and tend to be profitable in varying economic conditions.
A Track Record of Free Cash Flow
A stable track record of free cash flow allows us to evaluate the businesses ability to sustain our distribution based on historical results rather than basing our decisions on projections alone.
Low Risk of Obsolescence or a Declining Asset Base
We try to avoid companies that have a high risk of obsolescence or that have a declining asset base. These types of businesses tend to reinvest large amounts of capital to develop new products or to replace diminishing assets, and this creates low predictability of future cash flows, as well as makes it hard for them to maintain regular cash distributions. This typically includes natural resource exploration and technology based companies.
We like to partner with management teams that have experience with the underlying assets and intend to continue to actively manage the business after partnering with Alaris.
Low Debt Levels and Capital Expenditure Requirements
Alaris ranks behind senior debt providers in the capital structure of our Partners. Therefore, we try to limit the amount of debt our Partners have ahead of us in their capital structure, as those lenders get paid in priority to our preferred equity distributions. We also like to partner with companies with low annual requirements for maintenance capital expenditures as these types of expenditures reduces the cash available to pay our distributions. Combining those two criteria with an adequate cash flow buffer helps to decrease our risk and volatility in our cash flow.