Quantum Capital is a private equity investment firm based in Toronto with offices in Dallas and New York. The firm has an established network of wealthy business leaders who created their wealth as founders and operators of successful existing enterprises. This proven operational judgement, combined with significant corporate finance expertise, differentiates Quantum as a value added merchant bank. Quantum makes control investments in emerging and middle market companies. Andrew Blott, who founded Quantum in 2004, leads the firm’s investment strategy by seeking out special situations that lead to proprietary investment opportunities.
The Canadian Business Journal spoke with Quantum’s Managing Partners, Andrew Blott and Lawrence Stuart, about their industry-agnostic investment approach and the challenges of private equity investing in middle market companies.
“I worked in investment banking and leveraged buyouts in New York for 15 years, but eventually I decided that I really wanted to do something more entrepreneurial. I set up Quantum to make controled private equity investments in small- and mid-market companies. Lawrence Stuart joined me and contributed his substantial buyout and legal expertise. We are selective, but make significant contributions investing alongside our management teams, sharing proven business judgement and excellence in corporate finance and financial restructuring,” explains Blott.
Quantum Capital strives to understand and manage downside risks through exhaustive due diligence, valuation, transaction structuring, and actively participating in the transformation of acquired businesses. Typically, Quantum’s transactions range in value from $25 million to over $300 million, including equity contributions of $5 million to $100 million per transaction. Quantum makes one or two new investments per year, allowing for thorough focus on each new deal, without sacrificing its full support of the companies in the firm’s existing portfolio. Quantum is very patient capital.
An important distinction between Quantum Capital and many other private equity firms is that its capital is provided exclusively from high net worth individuals with proven business judgement. The firm is not bogged down by institutional processes designed to compensate for deficient real life experience. The firm carefully chooses investors, opting for self-made entrepreneurs who are willing to actively participate as board members, and drive value in Quantum’s partner companies.
“Proven business judgement supports our management teams to transform their businesses. We value nuts and bolts operational experience and realize that it takes more than a fancy spreadsheet and investment memorandum to transform a company,” adds Blott.
Quantum is industry agnostic. Rather than seeking out expertise-based opportunities in specific industries, the firm seeks opportunities to back management teams with superior operational capabilities. Since 2004, the firm has invested in specialty gaming (i.e. Don Best Sports, sold to Fun Technologies/Liberty Media Corporation), oil field services (i.e. Skyway Canada Limited), transportation logistics (i.e. RailCrew Express); and consumer brands (i.e. Lone Star Texas Grill).
“From a return threshold point of view, we are looking for opportunities that serve the investors as well as the management teams and the sellers. Our goal is to benefit all parties involved in the transaction. Yes, our goal is to raise value for our investors. But in order to do that, we have to add value to the companies we are invested in. It’s really a win-win-win situation,” summarized Stuart.
For example, in the firm’s Skyway Canada Limited investment originated in 2007, Quantum helped a “Mom & Pop” operation transform into an industry leading powerhouse. Revenues have doubled and, more importantly, EBITDA has tripled, under Quantum’s guidance. Skyway now qualifies for and is included on the bidders’ list of every major petro-chemical company in Canada, winning more than its fair share of tenders, including some of the largest projects in Canada.
Another example is RailCrew Xpress (RCX), a company that provides reliable transportation for railway engineers. During Quantum’s investment tenure, RCX has distinguished itself from its competitors by investing in technology such as GPS tracking of vehicles, in-vehicle safety cameras, B2B order taking and B2B direct billing. Quantum also resourced the management team. Class 1 railway customers responded to this demonstrated commitment, and rewarded RCX by recommending other railways that were being serviced by competitors, resulting in a considerable business expansion for RCX.
The goal of transformative private equity investing is to raise the value of the target businesses in order to achieve superior investor returns. However, what makes a successful private equity investment firm in Blott’s eyes is the commitment to the deal, making sure that all parties are satisfied with the progress of the investment and the development of the business. In this regard, Blott reminisced about the financial crisis, as some of the company’s investments were bound to struggle in such economic conditions. Facing the storm, Quantum did not simply cut its losses and move on, but rather weathered the storm alongside its businesses and continued to fund projects during uncertain circumstances.
“This was a hard situation, and we worked closely with our investors and management teams, and we truly stepped up for our businesses. Many of our competitors were going out of business, but we persevered and provided capital where necessary to support and maintain our businesses. We successfully weathered the storm, while our competitors went out of business. This is truly a testament to our investor base, all of whom are strong entrepreneurial operators who understand the risk and who can ‘see the forest through the trees’ so to speak,” says Blott.
Quantum’s investments continue to thrive as the North American economy continues to rebound, and the firm plans to continue on the road of seeking out safe and sound investments and drive the transformations of those businesses.