CNL Strategic Capital, LLC: A Comprehensive Review of the 2023 10-K Filing

Introduction

CNL Strategic Capital, LLC ("CNL Strategic Capital" or the "Company") is a limited liability company that primarily seeks to acquire and grow durable, middle-market U.S. businesses. The Company is externally managed by CNL Strategic Capital Management, LLC (the "Manager") and sub-managed by Levine Leichtman Strategic Capital, LLC (the "Sub-Manager"). This blog post provides a comprehensive review of CNL Strategic Capital's 2023 10-K filing, highlighting key aspects of the Company's financial performance, investment strategy, and market risks.

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Financial Performance Overview

CNL Strategic Capital reported a net increase in net assets resulting from operations of $64.2 million for the year ended December 31, 2023. This represents a notable improvement from the $58.1 million reported in the previous year. The Company's investment income also saw a significant increase, rising from $46.9 million in 2022 to $59.5 million in 2023. This growth in investment income can be attributed to interest income from portfolio company investments and U.S. Treasury bills, as well as dividend income from portfolio company investments.

The Company's operating expenses totaled $36.4 million for the year, with the largest expenses being total return incentive fees and base management fees. Despite these expenses, CNL Strategic Capital managed to achieve a net investment income of $22.5 million before taxes.

Investment Strategy and Portfolio

CNL Strategic Capital's investment strategy focuses on acquiring controlling equity interests in combination with debt positions in middle-market U.S. businesses. As of December 31, 2023, the Company had invested in 13 portfolio companies, with investments totaling approximately $876.8 million at fair value. The Company's portfolio is diversified across various industries, including real estate services, information services, healthcare supplies, and engineered products, among others.

The Company's investment approach involves a thorough review and asset selection process, coupled with careful ongoing monitoring of acquired businesses. This strategy aims to provide long-term capital appreciation and current income while protecting invested capital.

Market Risks and Challenges

CNL Strategic Capital faces several market risks, including credit risk, changes in market interest rates, and exchange rate sensitivity. The Company's portfolio companies and investment activities are affected by global and national economic, political, and market conditions. Recent external events, such as public health crises, natural disasters, and geopolitical events, have led to increased financial and credit market volatility, which could impact the Company's financial condition and results of operations.

The Company is also subject to financial market risks related to interest rate fluctuations. As CNL Strategic Capital may borrow money to make investments, changes in interest rates could have a material adverse effect on the Company's net investment income.

Conclusion

CNL Strategic Capital, LLC has demonstrated solid financial performance in 2023, with an increase in net assets resulting from operations and investment income. The Company's strategic focus on acquiring and growing middle-market U.S. businesses has contributed to its success. However, CNL Strategic Capital must navigate various market risks and challenges to continue its growth trajectory. Investors and stakeholders should closely monitor the Company's performance and market conditions to assess the potential impact on their investments.

Overall, CNL Strategic Capital's 2023 10-K filing provides valuable insights into the Company's financial health, investment strategy, and market risks. The Company appears well-positioned to capitalize on opportunities in the middle-market segment, but it must remain vigilant in managing the inherent risks associated with its investment activities.