Surviving Private Equity in Utah
By Alex Koritz
Profitability is on the mind of fund managers. Utah private equity firms are encouraging the slashing of costs, boosting of sales and new markets, and the paying down of debt. And it’s the CEOs that are in the hot seat. Private equity firms expect their CEOs to make the smart and aggressive moves that yield the required financial results. This often means making changes to management and culture to sustain those results.
“Utah firms are tightening up,” says Kent Thomas, founder of CFO Solutions. “However, there is still a lot of money circulating looking for good investment opportunities.”
In today’s tender economy, and with predictions of recession on the lips of financial pundits, private equity firms are treading lightly. Expect to see turnaround investments and buyout equity gain further traction because the price of companies will fall, while growth equity or “injection investments” will decrease.
“The fall out in the credit markets have made investors more cautious, but there is still reasonable activity in Utah,” said Fraser Bullock, co-founder and managing director of Sorenson Capital.
Despite the gloomy economic forecast nationally, private equity has made recent inroads in Utah. Sorenson Capital just closed their second fund, breaking a Utah record with over $400 million raised. Philanthropist John Huntsman Sr. and Robert Gay have started a new fund, Huntsman Gay Capital, with Steve Young, Richard Lawson and Ron Mika as key executives. In addition, Aries Capital, a new fund stemming out of Peterson Partners, has begun raising money.
“We’re also seeing a lot more interest in Utah from outside private equity groups,” says Jeremy Neilson, managing director of the Utah Fund of Funds. “As Utah companies get more mature, and as CEOs and entrepreneurs demonstrate a track record of success, investments look a lot more attractive.”
Bullock agrees. “A great track record is the first thing we look for. Second, we want to see if the CEO can build a robust team of talent individuals. Third, we want to make sure the CEO has a clearly defined vision for the business.”
Although Utah’s economy ranks near the top, local firms are still focused on streamlining the operations of their portfolio companies. According to a recent Ernst & Young study, buyout firms replaced CEOs or CFOs at 17 of the 23 U.S. companies that they sold or took public in 2006. In order for CEOs to keep their jobs, it’s all about reaching the right benchmarks and the willingness to cooperate with these firms.
“Hitting the numbers and getting the desired results is most important,” adds Thomas. “However, the right attitude is vital. Private equity firms want someone they can work with. If a CEO has a big ego, is resistant to change and won’t take direction, the firm will drop them.”
That being said, private equity deals can be very attractive to CEOs and entrepreneurs. When buyout firms are typically looking to make three times the amount they invested, this can spell big money for the founder, CEO and exiting management team.
There are several examples of savvy Utah CEOs that have not only survived the private equity play, but thrived. Jim Thornton, CEO and president of Provo Craft Novelty, Inc., is one of these. Under the watchful eye of Sorenson Capital, Jim took over the company when it was failing to deliver the expected financial returns. In his first year he completely turned over the management team, personally took on all of their roles by himself to flush out the bugs, and reshaped it into a mega-profitable company. He grew the company’s revenue 38% in two years with an improvement of 227% in EBITDA, earning him an Ernst & Young Entrepreneur Of The Year for 2007.
“Working with the right private equity group is key,” said Thornton. “It’s a tough, scrutinized environment, but if you pull together the right team and focus on delivering the required results, it’s a win-win situation.”
Bullock says private equity firms want to act as advisors and counselors. “We don’t want to interfere with the daily operations of the business, but it’s important to have a CEO that sees us as a partner.”
Jonathan Coon of 1-800 CONTACTS is another notable example. In 1995 while completing an MBA program at Brigham Young University, he began selling contact lenses to other students. Seeing an opportunity he couldn’t pass up, he secured a business loan and raised a small amount of capital from a private investor. Last summer Coon successfully navigated the private equity waters and sold his company to Fenway Partners, a transaction valued at $347.87 million.
From the private equity point of view, they are looking to the horizon and the future of their investment. Period. They want a CEO who performs financially but is also tight on the softer skills, such as building teams, the ability to lead and inspire, and someone who will cooperate with them. If not, it’s often a deal breaker. The CEO is ultimately expendable.
To survive such a fate, Thomas advises that CEOs take their time courting the private equity group. “Do the research. Understand what the firm is looking for. They typically want their return within 2 to 5 years, and they’ll be very aggressive in achieving that.”
A study by Cone found that Americans expect companies to have a social media presence. 60% of Americans use some form of social media and 59% of those are using this media to interact with companies. That means more than 35% of Americans are using social media to interact with companies and there are many more people that can be reached through these methods.
The morning of April 21, small business owners and executives gathered at SLCC’s Miller Campus for Thriving in Today’s Economy and left with practical ideas for running their businesses is this tough economy. MarketStar Chairman and Entrepreneur of the Year Alan E. Hall kicked off the morning with thoughts about the critical elements of building a solid organization. In general presentations and breakout sessions, Jim Bennett and Laura Guthrie of NOW Advisors addressed financial and risk management techniques; Jeff Jones of Durham Jones Pinegar reviewed a wide array legal risks and opportunities for these times, and Sprout Marketing’s Bruce Law presented multiple ideas about making big marketing impacts in focused ways.
Take a look:
Here’s what was really different about this free Business Builders Series seminar: instead of concentrating on just one topic, this event enabled small business owners to gain insights and network across several core aspects of their businesses in the course of a single morning. Sprout, DJP and NOW Advisors sponsored this event and were joined by several key partners who donated their services.
Join us at our next seminar on June 24, which will cover new topics. Check out the details at utahbusinessbuilders.com.
Check out this great article in Scientific American by Larry Greenemeier, illustrating Willowstick’s AquaTrack technology and how it’s changing the way we see underground.
Extreme Tech - May 8, 2009
[Slide Show] Divine Idea: Plugging Dams and Tracking Underground Water, Using an Earth MRI
New technology maps water underground by following the flow of electrical current
By Larry Greenemeier
Sri Lanka’s Samanalawewa dam on the country’s Walawe River has been leaking since the day it was completed in 1992. In the interim, the country has spent more than $65 million to plug the leaks in its second-largest dam, built to power the 120-million-watt Samanalawewa Hydroelectric Project. A 2005 study found that the reservoir—located near the town of Balangoda about 100 miles (160 kilometers) southeast of the capital Colombo—was leaking continuously at a rate of 475 gallons (1,800 liters) per second. And shotgun-type methods to solve the Samanalawewa dam problem—including the use of 13,640 tons of cement to reinforce the dam and the dumping of 1.8 million cubic feet (50,000 cubic meters) of clay to plug the holes—have failed.
The problem is that geologists and engineers do not know where all of the leaks are. So they turned to U.K. engineering consultant firm Atkins Global. Atkins performed a preliminary inspection of the dam and surrounding area for three weeks in February using AquaTrack technology developed by Draper, Utah–based Willowstick Technologies. The roughly $3-million project calls for Atkins Global to do additional survey work using AquaTrack this summer to pinpoint the sources of the leakage and spend the subsequent wet season planning precisely where to inject grout to plug those holes, work that Andy Hughes, the company’s director of dams and reservoirs, anticipates will begin early next year.
Here’s how AquaTrack works: Two electrodes—each three feet (one meter) long—are lowered down, one into the reservoir and the other someplace on the opposite side of the dam (typically in a sinkhole or other standing water downstream of the dam). The top of each electrode is connected with a wire. Once they switch on the electricity, "We’ve basically created a large circuit," says Paul Rollins, Willowstick’s vice president of business development. Because groundwater is a conductor, the electrical current follows it between the electrodes, creating a magnetic field that can be detected on the surface using a sensitive magnetic receiver.
Once the magnetic field is generated, Willowstick’s scientists walk the ground between the probes in a gridlike pattern with an instrument that collects data about the frequencies it detects underground. (The researchers are most interested specifically in the 380 hertz signals that AquaTrack’s electrodes emit). The instrument is contained in a box that is three feet (one meter) tall and six inches (15 centimeters) square and held upright by a tripod and can collect thousands of readings in just five minutes, according to Rollins. (The technology has already been used successfully at a number of dams, including River Reservoir Dam No. 3 on the Little Colorado River in Arizona and Wolf Creek Dam on the Cumberland River in southern Kentucky.)
The circuit emits a magnetic field at 380 hertz that follows any groundwater it finds, Rollins says, "because water’s really the best conductive [material] under the ground." The greater the amount of saturation, the greater the magnetic field, which emanates upward where it is recorded by Willowstick’s surface sensing instruments. The gathered information is uploaded to computers at Willowstick’s facilities, where researchers follow the thread of any 380 hertz readings to map the flow of underground water sources.
This will help determine the source of the leak, even if the leak is under the dam, Hughes says. "All dams leak to some extent," he adds, "but we don’t want them to get out of hand."
U.S. companies have used AquaTrack to map dam seepage as well as determine the extent and location of groundwater those companies may have contaminated. Once a company that owns a plant or mine, for example, discovers it has polluted the local groundwater (or has been ordered by the U.S. Environmental Protection Agency to investigate the possibility that it has), the only real way to understand the problem to this point has been to dig a series of wells—generally six inches in diameter—to sample soil and underground water for contaminants, Rollins says.
Companies generally pay up to $120,000 to drill each well, so "they’re not going to want to put 100 holes in the ground," Rollins says. "By creating theoretical flows in a modeling environment, the scientists can create theoretical magnetic fields," he adds. "They will then model these flows until the theoretical fields match [the data] collected in the field. Once they get the shape of the theoretical anomaly to match the actual data, then they can accurately determine depth of the dam seepage or groundwater." The goal here, as when the technology is used to find dam leaks, is to inform engineers as precisely as possible where they should drill to either pour concrete (in the case of a leaky dam) or take water samples to find the route of the contaminated water.
AquaTrack is designed to function much the way an MRI or X-ray is used locate a health problems within the body prior to surgery. "You wouldn’t walk into a doctor’s office and tell them to cut you open to find out what’s wrong," Rollins says. "You’d first want to get an X-ray or MRI."
Of course, AquaTrack is not the only technology that allows scientists and business prospectors to better understand what lies beneath. Oil and gas companies for years have used the techniques of blasting or pounding into the ground and measuring the resulting shock waves to determine a site’s crustal composition and, more importantly, where they might want to drill. "The acoustic signal travels through the Earth, and at each rock layer interface some of the signal bounces back up to the surface to be recorded by the sensor array," says Alex Krueger, vice president of research, development and marketing for Headwave, Inc., a Houston-based maker of software that can make maps out of raw data. "Thus, an image of the subsurface layers can be created."
Striking a balance between traditional PR and social media can be difficult, but when done correctly it can have viral effects. I have found this to be true as we conclude a highly successful campaign and red carpet event for one of our clients, Goldsmith Co. Jewelers.
Pre Campaign: Low brand awareness, low to no online presence with a new web site and blog still under construction.
Post Campaign: Multiple prominent blog posts and facebook profiles. A flurry of tweets, broadcast and radio segments and significant print coverage. All attention leading to dramatically increased foot traffic. In the weeklong campaign, thousands of people visited Goldsmith Co. Jewelers.
People waiting inline to get thier free pearl necklace.
The campaign was weeks in the making, beginning with focus groups and participant identification. Partnering with a private consultant, we identified and followed multiple influential social media gurus. We approached each of them individually and offered compelling value.
We strategically arranged and framed a red carpet event highlighting Goldsmith Co. Jewelers’ generosity and unique approach to business. The evening consisted of pampering, networking and jewelry education. Each blogger received a beautiful PANDORA bracelet, freshwater pearl necklace, swag bag, jewelry cleaning and plating and amazing food. Supporting images and reference materials were also provided.
Dark yellow PANDORA bracelet.
Additionally, each participant received a coupon for a free strand of freshwater pearls ($100 retail value) to give away to their blog, facebook and twitter followers. The pearl coupons and media coverage effectively perpetuated the campaign into a viral model by providing value to both the media and consumer.
Our aim was to increase store foot traffic and awareness for PANDORA and Goldsmith Co. Jewelers in preperation for Mother’s Day, which we did. We took a balanced two-pronged PR approach. First, we reached out to and facilitated an event for a very influential group of mommy bloggers, tweeters and facebookers. Second, we followed up with a heavy round of traditional PR. This campaign is a great example of how using social and traditional media can help PR professionals achieve success for their clients.
Watch for more details, statistics, and coverage links in my next post. Cheers!