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"The art of good business is being a good middleman." Eddie Temple, Layer Cake |
The musings of a fictional gangster played by Michael Gibon would, at first glance, appear to have little practical application in the world of legitimate business. However, Gabon's quote is actually an excellent summation of one of my favorite frameworks through which to view the investable world - the Midco.
The MidCo is the love, respect, community...and the dollars too. Wait...no...that's the kwan. But there is certainly kwan to be minted by an archetypal MidCo. So what is a MidCo? The MidCo can be broadly thought of as a for profit toll collector. He sits at the intersection of a transaction between two or more parties who are attempting to engage in commerce. He can take either a virtual or physical form. The purest form of a virtual MidCo requires almost nothing, save a mobile phone, a Rolodex and moxie (think real estate or mortgage broker). A physical MidCo generally provides a transportation, communication or logistical function allowing commodities (including information) and goods to move between two points (think toll road or natural gas pipeline). However, not all transportation related businesses are MidCos. A physical MidCo must own the permanent infrastructure connecting the counterparites (e.g., telephone network operators). This eliminates trucking, airline and shipping companies and is a key determinant of profitability and operating leverage (more to come on these subjects).
So what makes a MidCo a MidCo besides its general role as an intermediary? There is some ambiguity in certain instances (i.e., are railroads MidCos? answer - probably) but I wouldn't go so far as to invoke Justice "I know it when I see it" Potter Stewart at this point. Below are my top 4 "you might be a MidCo ifs" in no particular order:
