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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.”
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
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.
View images of how AquaTrack works
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.”
Company Continues to Thrive in Down Economy by Providing Affordable Expertise
SALT LAKE CITY — Sprout Marketing, the leading marketing department for hire, today announced the opening of a new office in Scottsdale, Arizona. The office, which opened at the end of January, will serve clients in the Arizona area and the greater Phoenix area in particular.
“In a troubled economy, entrepreneurism tends to flourish. Sprout Marketing was designed to help these small businesses succeed,” said Sprout Marketing Founder and President Bruce Law. “We see this as an opportunity not only to grow our own business, but to help fledgling Arizona companies market themselves in an affordable, effective manner during a time when they desperately need it.”
The Arizona office will offer clients the same specialized services Sprout Marketing offers, namely marketing consultation, strategic planning, public relations, interactive, advertising, SEO, market research, lead generation and more. The company model remains the same as well: for roughly the price of one marketing executive, companies can hire Sprout and receive the support of a full-service, integrated department.
Leading Sprout’s Arizona operation is Doug Craig, the new Vice President and General Manager of Sprout Arizona. Craig brings over 15 years of experience in marketing and managerial positions, including stints with the Henkel North America (The Dial Corporation), Safeway, Bell Automotive Inc, and IRI. Craig holds an undergraduate degree from the University of Florida and a master’s from Arizona State University. Craig has worked with several startups and has a strong history in building brands from the ground up.
“Our Utah office is still flourishing, but Arizona presents an opportunity for Sprout to help nourish and promote another group of strong entrepreneurs,” Craig noted. “I’m pleased to be leading the operation, and early indicators show that our model of affordable marketing is connecting with the Arizona business community.”
The Arizona office of Sprout Marketing is located at 7047 E. Greenway Parkway, Suite 250, in Scottsdale. Those interested can stop by or call 480-304-5630 for more information. Doug Craig can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it
or 602-697-7547.
Utah Business Awards Recipients
Utah Business Honors Award Recipients, Innovation at 2009 iQ Awards
Utah Business and Wasatch Digital iQ magazines honored 30 outstanding companies in the Beehive State for their achievements in innovation at the second annual iQ Awards Wednesday in Salt Lake City. Out of the 30 finalists in the competition, 10 companies were selected as award recipients, which were determined by a panel of seasoned professionals in the technology industry.
The awards recipients for the 2009 iQ Awards are:
Software – Omniture
Consumer Products/Gadgets – Control4
Hardware – ATK
Green Business – Willowstick Technologies
Human Resources/Business Training – EnticeLabs
Business Services – ProPay
Online – Interbank FX
Product Marketing - Rain (formerly MediaRAIN)
IT Security – Spearstone
Data Management – Cemaphore Systems
Chris Harrington, president of worldwide sales and client services at Omniture, which was one of the awards recipients, said the award recognizes the company for its global achievements as the largest provider of software for online business marketing and optimization.
“Innovation has been the lifeblood of Omniture since our inception,” Harrington said.
Paul Rollins, vice president of business development for Willowstick Technologies, which was the award recipient for Green Business, said his company’s recent achievement is due to the creative minds of his employees that have created innovative subsurface water mapping services. This unique technology has helped a variety of clients around the nation, including the U.S. Army Corp of Engineers.
“We have really been able to take a technology that helps the environment,” Rollins said.
Even though only 10 companies received awards, Utah Business publisher and editor-in-chief, Martin Lewis, said all of the finalists in the competition represent excellence in innovation and deserve recognition.
“The 2009 iQ Awards finalists have fully demonstrated how progressive thinking, hard work and innovation have helped solidify
