Mequon-based private equity firm Blackthorne Partners Ltd. recently acquired Oak Creek-based network support provider Group Basis LLC and plans to double the company’s size in the next two years.
The deal is one of several recently for Blackthorne, which has targeted smaller companies for acquisitions.
Blackthorne purchased a majority ownership from the original Group Basis founders, and has installed Jack Gebhardt as president and chief executive officer. Gebhardt worked in M&A at Brookfield-based financial technology company Fiserv Inc. and then served as president of Milwaukee-based IT firm Tushaus Computer Services from 2008 until it was sold to Mason Wells in 2011.
Looking for a new investment, Gebhardt worked with Blackthorne to identify potential acquisition targets, focusing on his technological expertise.
They landed on Group Basis Inc. — now Group Basis LLC — a co mpany that serves as a system administrator for companies using a type of business operations software called SAP. It goes by the name group:basis.
“We chose it because we had an opportunity with a technology company, so being that technology was my background, we thought this was a good fit for how we can take this business from where it’s at today and take it to the next level,” Gebhardt said.
Group:basis has 19 employees, with plans to grow. It has 90 clients all over North America, Gebhardt said
“Our goal is, how we can continue to expand our client base?” he said. “We’ll do that by growing our employee base and we’ll do that by growing the number of companies that we’re providing hosting services to. In the next 12 to 24 months, we will likely double our workforce.”
The continued growth of global software powerhouse SAP and the increasing need for business information management has driven growth at group:basis, Gebhardt said.
“As technology continues to grow, as there is more dependence on IT, the volume of data that is being retained by companies and the volume of information that they retain creates the need for this data to be stored somewhere,” he said.
Group Basis is currently using only 20 percent of its building, but Gebhardt plans to expand into the rest of the space in the next three months to accommodate growth, he said.
Blackthorne’s investment in Group Basis will help the company grow beyond its current $5 million revenue. Gebhardt has experience driving expansion, having helped grow Tushaus from $24 million to $35 million in annual revenue when he was there.
“In order to take the next step and take that business to the next level, oftentimes it requires (companies) to bring in additional talent to bring that business to the $10 or $20 or $30 million level,” he said.
Blackthorne invested in group:basis to facilitate growth through recapitalization and new management, said president and founder John Syburg.
The Group Basis acquisition is one of several recently for Blackthorne, which Syburg started in 2006. He and managing director Steve Balistreri have targeted smaller companies with earnings between $500,000 and $1 million for acquisitions.
“One of the reasons we’re focused on that size is because none of those other guys are, and we think there might be an opportunity there,” Syburg said. “It’s a niche that we think is underserved in terms of the private equity world.”
There are a lot of private equity players looking to acquire firms in the $2 million and up range, but not many looking for companies with EBITDA under $1 million, Balistreri said.
“We can bring a lot of value to the table right away,” Balistreri said. “Since there’s not a lot of people scrambling after those companies, it’s less competitive.”
Most of the businesses that Blackthorne invests in were started by an entrepreneur that has grown the company as far as he or she could take it. Either the entrepreneur wants to take some personal money off the table or needs working capital, so they approach Blackthorne to take the company to the next level, he said.
For the last couple of years, Blackthorne has focused on direct investments rather than institutional private equity funds it has used in the past.
“Our model is different from some of the other private equity funds here in Milwaukee,” Balistreri said. “Since we don’t have a fund, (investors) can pick and choose which deals they’re interested in.”
The company only raises the money once it has a business under letter of intent, so investors know exactly which small, private business they are investing in.
“We’re going to be growing some pretty attractive jobs here,” Syburg said. “Our investor base is really a bunch of successful individuals, many of whom have created that wealth through owning their own businesses, and they’re taking that money and investing it back into a Milwaukee-based company.”
Blackthorne has also provided a marketplace for smaller, established companies to transition ownership, Balistreri said.
For example, Blackthorne acquired Pallet USA, a Lannon-based pallet manufacturer, in 2011. Blackthorne brought in a general manager with sales experience and created a website for the company — a rarity in the pallet industry.
As a result, Pallet USA’s sales are up 250 percent.
“It really showed us that bringing some professionalism to a less than professional industry really could pay off with the right companies,” Balistreri said.
In November, Blackthorne acquired Berlon Industries, a Hustisford-based manufacturer of buckets and attachments for skid loaders, telehandlers and compact utility tractors. That company has already shown growth.
Balistreri and Syburg find their acquisition targets through banks, attorneys, business brokers, investment bankers and letter campaigns. They may evaluate 100 deals per year until something fits the model, Balistreri said.