The Power of Diversification in Private Equity: Lynx Equity’s Approach

In the ever-evolving world of private equity, one thing remains constant: the importance of diversification. While many firms actively pursue synergies across their portfolio, Lynx Equity approaches diversification with a unique philosophy that has set us apart. We believe in acquiring fundamentally sound businesses—regardless of their industry—and allowing synergies to develop naturally.

Why Diversification Matters in Private Equity

Diversification isn’t just a buzzword in private equity; it’s a strategic imperative. A diverse portfolio mitigates risk by reducing dependency on any one sector. In a diversified portfolio, the performance of businesses is often uncorrelated. This means that when one industry faces challenges —be it market volatility, regulation, or economic downturn—other businesses in the portfolio in different industries may continue to thrive. In essence, diversification ensures that risk is spread across multiple assets, regions, and markets preventing over-reliance on any single business or sector. At Lynx, for example, there is no business in our portfolio of 57 companies that makes up more than 10% of our revenue. This balance stabilizes our portfolio and paves a smoother path to consistent performance.

For private equity firms like Lynx, diversification also opens up opportunities to explore various markets without overcommitting to a single sector. We’ve experienced that the business landscape can shift rapidly, and our broad portfolio has given us the flexibility to adapt while benefiting from portfolio stability.

Lynx Equity’s Approach to Diversification

At Lynx, we focus on finding great businesses with time-tested models of value creation, as a prerequisite for acquisition. We maintain these criteria rather than actively pursuing synergies or specific industries. This approach enables us to maintain a diverse portfolio while benefiting from operational efficiencies when they arise—without making synergies the driving force behind our acquisition strategy. As we grow familiar with the industries we acquire, opportunities for synergies often emerge organically.

Consider our portfolio’s composition: spanning industries like manufacturing, commercial flooring, commercial services, wholesale, signage, and retail. Each business we acquire has its own unique value, but as we continue to manage and grow these companies, we inevitably gain expertise and insight that enable us to make better acquisition decisions in the future. For instance, while we may not set out to build a portfolio focused on manufacturing, our familiarity with the sector through acquisitions allows us to more effectively identify value and buy businesses within this sector. Additionally, over time, these connections create natural synergies without diminishing our commitment to buying great businesses and across diverse industries.

A closer look at our portfolio reveals an even deeper level of diversification, with subsectors across our broader industries. This further diversifies our risk by allowing us to weather fluctuations at both the macroeconomic and microeconomic levels. See some examples of these sub sectors below.

Hidden Synergies Across Industries

One of the most fascinating aspects of diversification at Lynx Equity is the presence of what we call "hidden synergies." These are subtle operational efficiencies and knowledge-sharing opportunities that emerge, even across seemingly unrelated industries. For example, although our custom millwork, signage, and flooring companies all provide different products and services, their end customers often overlap. A general contractor responsible for the new construction of a car dealership or gym may need a sign supplier, a custom millwork supplier, and a flooring contractor. In this case, we can leverage our relationship with this general contractor or end user for one of our companies to cross-sell the services of other companies.  

Other consistent synergies are found in key business functions such as marketing, business development, IT, HR, accounting, and purchasing. When companies deal with similar materials, customer bases, or project timelines, they can benefit from shared best practices and streamlined processes. These less obvious synergies are not the result of deliberate pairing or a “Lynx playbook” but arise organically as we become more familiar with each business and sector.

Industry Agnostic: Quality Businesses First

At Lynx, our philosophy is simple: acquire great businesses. We are industry-agnostic, and our decisions are driven by the merits of the business itself, not the industry it operates in. We focus on companies with strong management, reliable cash flows, and a track record of success. By doing so, we avoid the pitfalls of over-reliance on any single sector and ensure that our portfolio remains resilient in the face of economic shifts.

Maintaining an open mind across industries also prevents our team from developing biases or narrow frames of reference that can arise from focusing too heavily on a single sector. Firms that concentrate exclusively on a single industry, where business models, profit margins, and growth trajectories are often highly specialized, may inadvertently limit their perspectives. Additionally, this can lead to valuation biases where a firm overpays or misses good opportunities when valuation criteria are different than the industry they’re familiar with.  

In contrast, Lynx' exposure to a wide range of industries sharpens our judgment, enabling us to identify successful businesses in even the most niche markets. This openness, combined with variable-industry experience, allows us to see opportunities that might otherwise be overlooked by firms constrained by excessive specialization or narrow market focus.  

Building Legacies & The Buy and Hold Advantage

Lynx prioritizes long-term growth and stability.  Our diverse portfolio in combination with our buy and hold approach allows us to navigate short-term market fluctuations while positioning for sustainable growth over time. By holding our company ownership indefinitely, we can fully support the strengths of our businesses, ensuring that the portfolio continues to deliver performance year after year.

Lynx’ unique approach has allowed us to grow a portfolio of 57 businesses across five countries, with combined revenues exceeding $850 million CAD. Our experience in diverse industries means we are never beholden to the fortunes of a single market, giving us the confidence to navigate economic uncertainty while continuing to generate strong returns for our investors.

At Lynx, we’re not just building a portfolio—we’re dedicated to finding great businesses and extending their legacies of success.  

Interested in portfolio diversification into private markets and investing with Lynx? Contact our team to learn more at ir@lynxequity.com.