Willow Creek Partners - The Year in Review

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In a lot of ways, 2023 was an extraordinary year.  Consumer and investor sentiment generally tracked in different directions.  Asset heavy industries struggled as the cost of capital exploded.  Rapidly growing technology companies saw massive rerating (lower) in the capital markets, and the number of transactions fell off a cliff.  This decline in transactions is ultimately the defining datapoint for the year as investment bankers, real estate brokers, and private equity businesses are usually handsomely rewarded for consummating transactions.  This was in many ways, not a great year for those businesses because asset owners wanted a lot more for their assets than new buyers were willing to pay. 

US Buyout Deal Activity

In private equity, the reason for the giant spread between buyers and sellers was almost entirely driven by interest rates and a lack of availability of capital.  In real estate, the change in rates was compounded by higher costs of many of the inputs in financial models.  Certainly, inflation in materials was a big part of this, but what may have been the biggest surprise for real estate investors, was the cost of insurance (which has more than doubled over the last 4 years).  These changes in inputs have caused massive changes in underwriting. 

And while these changes are easy to layer into a model, the emotion involved in acknowledging that your old property was underwritten with assumptions that are no longer realistic has begun to really hurt those who were active buyers in the three years from 2020 to 2022.  In the meantime, the stock market’s large cap indices reached new highs amid cognitive dissonance caused by index structure and narrow leadership.  Check out your 401k, it likely looks a lot better than this year felt. 

Meanwhile, at Willow Creek Partners, we had a truly landmark year.  We, like any investment firm, would have preferred to see more new investments.  But we have enough investing experience to know that cycles come and go, and with any downcycle comes massive opportunity.  More than 18 months ago now, we made the decision to diversify our activities to include private equity transactions in government and business services. 

At the end of 2022, in preparation for this diversification, we hired two operating teams with decades of experience building businesses.  The first, a team of government contracting experts entered its first government services investment with the acquisition of TMR (Rebranded as The One 23 Group) in May.  The second, a team of entrepreneurs with a background in buying and building businesses across multiple disciplines is preparing to consummate their first transactions as we roll-up specialty architecture firms. 

In 2023, we also welcomed two exceptional professionals to the WCP team.  First, our Director of Research brings an extensive background in fundamental company research, a deep understanding of various businesses and macroeconomics, and has greatly enriched our investment strategies.  Similarly, we hired a VP of Acquisitions that brings a unique blend of real estate and technology expertise that has enhanced our underwriting processes with real-time analytics and more robust datasets. His innovative approach has not only streamlined our operations but also improved accuracy. The collective expertise that these two professionals have brought to WCP has proven invaluable, and we eagerly anticipate their continued contributions in the coming year. 

Willow Creek Partners is well prepared to find attractive assets, evaluate economic conditions, and identify opportunities through both top-down and bottom-up lenses.  We are excited to launch into what we believe will be a great year for all our stakeholders.

Thank you for joining us and Happy New Year!