DMS seeks to acquire controlling interests in active businesses that will allow it to earn a return on equity of at least 20% over a business cycle and which meet the other criteria described below.

Financial Criteria
Pre-tax net income amount: $2 to $15 million (current or potential earnings)
Equity investment size: $2 to $50 million
Pre-tax return on equity: 20% plus (see note below)

Note: DMS’ target return-on-equity depends on its perception of the predictability of the earnings of the business. DMS seeks a 20% ROE (or perhaps slightly below) for a business which historically has had, and which DMS believes will continue to have, a highly predictable stream of earnings over a cycle. DMS seeks higher returns-on-equity for businesses whose earnings are less predictable because of known risks facing the business. In assessing DMS’ return-on-equity over a cycle, DMS factors in any concrete growth opportunities and employs leverage appropriate to the business.

Industry Criteria
Because DMS places a high value on management and company culture, DMS is flexible regarding industries in which it will invest. Like most investors, DMS prefers businesses in industries which have good growth potential, which have high barriers to entry, which enjoy superior and consistent margins, which are non-cyclical and which have stable customer relationships and defensible market positions. However, DMS has repeatedly seen businesses operated very profitably by talented management teams in industries not meeting these criteria. Thus, while DMS does generally avoid certain industries (see below), it is generally willing to consider a wide variety of industries provided the right management partners will be involved.

Examples of Businesses DMS Has Considered
See “Portfolio” for industries in which the Dobbs Family currently has investments.

In order to provide some further guidance, the list below outlines several types of businesses in which DMS has seriously considered investing.
- Heavy equipment dealerships
- Heavy truck dealerships
- Home health care agencies
- Specialty hospital/surgical centers
- Benefit plan third party administrators
- Home infusion/respiratory therapy/DME companies
- Metal building manufacturers
- Multi location restaurant businesses
- Automobile collision repair centers
- Catalog merchant selling branded goods
- Outdoor/indoor advertising
- Commercial printing companies
- Auto parts wholesalers/retailers

Industries in Which DMS Will Not Ordinarily Invest
- High Technology
- Biotechnology or drug development
- Internet ventures
- Capital intensive manufacturing
- Commodity products
- Personal service businesses

Geographic Considerations
While geographic proximity to Memphis, Tennessee is desirable, DMS will consider investments anywhere in the United States. DMS’ two largest businesses are based in Albuquerque, New Mexico and Pittsburgh, Pennsylvania.

Startups
While DMS’ principal focus is on acquiring existing businesses with a record of accomplishment, DMS will consider start-up businesses. DMS views management as especially critical in start-up businesses and generally looks for management teams who have a track record of success in the type of business being considered.

Turnarounds/Distressed Companies
DMS is willing to invest in turnarounds or distressed companies provided the company involved otherwise meets its investment criteria.

Transaction Types
DMS is especially interested in management buyout transactions where management is buying out an historic individual owner of a business or where a corporation has made the decision to divest a “non-core” operation.

DMS has expertise relating to family succession matters which allows DMS to participate in a flexible manner in a recapitalization of a business undergoing a generational change in ownership

Ownership Structure
DMS ordinarily owns businesses through a pass-through entity (generally a limited liability company or a limited partnership) which allows current distribution of profits without double taxation. This allows both DMS and its management partners to enjoy the fruits of successful operation without waiting for some kind of financial exit.

No Need for Exit Strategy
DMS’ usual investment goal is to own companies for the long-term with cash distributions of profits being made currently (to both DMS and the managers) once the business is properly capitalized and current growth needs are satisfied. While DMS is certainly willing to consider exit strategies such as an IPO or strategic sale, a quick profit is not the principal goal of DMS. DMS believes this long-term perspective gives it an advantage over many potential acquirers who often have 4-7 year time horizons for getting into and out of transactions. DMS typically implements equity redemption arrangements with its managment partners to allow them to achieve liquidity at an appropriate time.

Assets Available For Investment
The Dobbs Family has in excess of $100 million available for private business investing activities. Available capital, together with prudent leverage, allows us to consider companies with an enterprise value up to $200 million in many industries.