PRIVATE CAPITAL · WESTERN AUSTRALIA
Most of what limits a good business
is structural.
We buy the ones where that is the only thing wrong.
Mercurian Equity invests in established Australian businesses that already have real customers and a strong market position. What they are missing is the kind of investor who can back a business this size. We usually take control, sometimes a smaller stake with strong protections, so we can help fix what is holding it back.
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- Sectors we cover
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- Principles we work by
THE CONSTRAINT
The limit is rarely the one the sector talks about.
A business can have genuine revenue, real customers and a defensible position, and still be unfundable. The reason is almost never demand.
It is a capital structure that will not support the next stage of growth. It is a founder who is, in practice, the business. It is financials that cannot be normalised to a number anyone would underwrite. Or it is the absence of the delivery and compliance infrastructure a sector requires before capacity can be added at all.
These are structural problems, and they price the asset. They are also the reason it is available. Most capital is not equipped to fix that class of defect, so it does not bid, and the businesses that carry one sit underpriced until someone does the work.
That is the whole of our thesis. There is no second part to it.
HOW WE WORK
We find the real constraint
Sectors describe their problem in the terms they find comfortable. Australian aged care talks about construction cost. Construction cost is not the constraint. The balance sheets of the operators who need to build are. We underwrite the binding constraint.
We test the operator before the opportunity
A market can be growing at 4% while every participant in it runs at a loss. The unit of analysis is not the size of the opportunity. It is whether this operator, with this balance sheet, can commission anything at all and recycle the capital afterwards.
We decline more than we pursue
Every thesis is argued against before it is funded. We review far more businesses than we transact on, and we sometimes publish the reasoning behind some of the ones we passed. Our investors should expect a clear account of what we are underwriting, what would have to be true for it to work, and what we have chosen not to do.
WHERE WE WORK
Five sectors. One kind of problem.
We are weighted to Western Australia, where our operating relationships are deepest and the competition for assets is thinnest. The sectors are not a diversification strategy. Four of them sit in the same industrial economy and increasingly serve the same customers. They are the places where structural constraint is the normal condition rather than the exception.
Aged care and home care
Residential operators holding land and occupancy at capacity, unable to expand because the funding model rather than the construction market is the barrier. In home care the constraint is different again: workforce, rostering and margin per hour, in a sector where demand is not in question and delivery capacity is.
Business technology and IT services
Australian firms with Australian staff and recurring service contracts: enterprise resource planning and customer relationship management implementation practices, managed service providers, data and analytics consultancies, cyber security and IT compliance advisers, and operational technology specialists serving mining and heavy industry. We are most interested in those already embedded with resources, construction and industrial clients.
Construction and mining services
Civil, fit-out, mechanical and mining services contractors, from drill and blast through to shutdown maintenance, carrying real order books and thin margins, where earnings quality and working capital rather than demand determine whether the business is fundable.
Logistics and transport
Asset-heavy operators with concentrated customer bases, where a single contract relationship carries the enterprise value.
Regulated financial services
Platforms where a licence, a compliance perimeter and a proprietary data position are the asset, and where regulatory change is a tailwind for those already inside it.
RESEARCH
We publish the reasoning.
We do not publish portfolio detail. What we do publish is the reasoning: each thesis argued in full, the sources named, the counterargument stated, and the point at which we would consider ourselves wrong.
It is the most direct way to assess how a firm thinks, and it is deliberately open to anyone.
ISSUE 03
Half the cost. Five times the speed. Why Australia still isn't building the beds.
Modular construction can deliver an aged care bed for under half the cost of a traditional build, in roughly a fifth of the time. We argue the cost case is settled and beside the point, because the operators who need to build cannot fund a bed at any price.
Read the issueWe would rather be judged on the argument.
If you operate, advise or invest in one of these sectors, we welcome the conversation. If our answer is that we are not the right party, we will say so in the first meeting.
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