How this Dallas private equity firm differentiates itself from others, family offices

Dallas Business Journal — April 5th, 2021

After almost 20 years, the leaders at CIC Partners know how to work together and trust each other. The business that they’re in, however, requires getting company owner-operators to trust them.

Thirty-seven investments deep with no signs of slowing show the partners’ differentiated strategy and goal of empowering entrepreneurs has paid off. The firm's portfolio companies have brought in more than $2.5 billion in revenue since 2004.

“We'll come in and invest with owner-operators, and help them succeed over the long term,” said Mike Rawlings who, while he was serving as mayor of Dallas between 2011 and 2019, stayed on the board and investment committee at CIC in a part-time role. “That's our specialty, and that's our differentiation. To do that, we've decided the best strategy is partnership. It's in our name — CIC Partners — for a reason."

CIC Partners aims to close between one and three investments in a normal year, but the private equity firm has already added four platform companies to its portfolio in the past five months and is working on more.

CIC Partners strives to differentiate from other private equity firms through its partnerships with owner-operator businesses and its investment strategy. Based in Dallas' Old Parkland office complex, the firm has invested $575 million in capital across 37 investments nationally — in the food, restaurant, energy, industrial, infrastructure, and health care industries.

The firm was founded in 2004 by partners Rawlings, Marshall Payne , Fouad Bashour and former partner Drew Johnson, who left the firm in 2012. It utilizes a partial ownership model — usually between 30-70 percent ownership stake — to invest in lower middle-market companies. All the firm's decisions are centered around creating the best partnerships possible with its owner-operators, working to sophisticate and grow the platforms without taking full control of them, the partners said.

The firm’s partners are the largest collective investors in the firm’s investor pool. CIC takes predominantly personal capital from partners, operators and industry executives while only using a small portion of institutional money, which gives the firm more flexibility in its investment timeline because it can tailor its exit strategy from company to company, depending on what works best for the management teams of the investments.

Bashour said the firm has held platforms for as short as nine months and over 15 years. However, they typically look to sell after about 4-6 years to a private equity firm or strategic acquirer, depending on what they decide with the owner-operator.

CIC closed on its fourth and largest fund of $190 million in 2017 and is continuing to deploy that capital. The partners said since they’re all significant stakeholders, owner-operators can see that their risk and reward interests are aligned. The firm keeps its fund sizes relatively small — other funds range from $50-$160 million — to focus on the lower middle market.

“What's really unique about us more than anyone, and why some of these owners think about us as good partners is because we have risks because it's our own capital,” said Amir Yoffe , the firm's fourth partner. “Most firms get the upside if it works well. They don't really have to deal with the downside. For us, we all lose our personal capital if things don't go well, and so that shared risk-reward is really different.”

The firm has recently invested a minority stake in TSU One, a Fort Worth-based diversified utility services company serving leading gas and electric utilities and other infrastructure providers in Texas and Oklahoma. CIC is the first outside investment partner the company has brought in, which the partners said is common for its platforms.

Since October, the company has also invested in three other platforms, each in a different industry: online postgraduate education development company American College of Education, seasonings and dry mix manufacturer McClancy Foods and Flavors and water and transportation and disposal provider Tri-State Holdings. Additionally, the firm has another potential investment deal in the works under a letter of intent, though it’s still undergoing due diligence.

The same family has owned McClancy for more than 70 years, and CIC was the first business partner the company brought on when the firm bought majority ownership last fall.

“The common theme, and it would keep going back to this, is we're looking to partner with these owners,” Bashour said. “A lot of times, the traditional private equity firm, or the traditional owner thinks, ‘I’m either going to own 100 percent of the company, or I'm going to sell it and ride off in the sunset.’ We really try to provide that middle solution, which is to bring them what they need in a partner to help them grow, but let them still run the business.”

Several members of CIC’s team and board are previous company leaders. Rawlings was CEO of Pizza Hut from 1997 to 2002, and several years before that, led marketing communications company TracyLocke as chief executive. Additionally, one of CIC’s lead investors and board members, Jim Smith , who helped refine its strategy, was an entrepreneur and CEO.

The COVID-19 pandemic also boosted deal flow in the latter part of 2020 because smaller companies became more aware of how a partner could influence their financial security in liquidity, capital, succession planning and potential acquisitions. Though the businesses CIC acquired stakes in weren’t as negatively impacted by the pandemic as some in different industries, the sellers wanted to de-risk financially and evaluate long-term options, Yoffe said. This was a national trend among sellers as deals dipped at the beginning of the pandemic but began to rebound by the end of 2020, per Pitchbook data.

Some of CIC’s investments in the food and energy space were affected by the pandemic. Still, because the firm runs a generally conservative capital structure — utilizing senior bank debt instead of subordinate debt to finance transactions — it allowed the businesses enough liquidity to function, Bashour said.

He added the firm’s platforms have all since bounced back and several businesses are performing stronger than before.

In January, the firm sold Dallas-based DynaGrid Holdings to BBH Capital Partners. CIC made a majority investment in the company about three years ago. Bashour said its growth exceeded objectives — the company has become one of the largest independent providers of subgrade and site work services for electric utility transmission infrastructure — though financial details and other metrics weren’t disclosed. Bashour did say the company generally shoots for a 20-25 percent annual growth rate for its portfolio of investments.

The investment in DynaGrid has also led to a partner at the company becoming an investor with the firm. Bashour said about a dozen CIC’s investors are former executives of the firm’s investments, including leaders from food companies Tiff’s Treats, CraftMark and L&L Foods.

The firm fits into the competitive private equity landscape in Dallas through its unique target and its internal team, Rawlings said. CIC doesn’t generally look to go up against private equity firms that fully buy out companies because it wants the existing management or founders to retain some ownership. In the investment environment, it competes against family offices and independent sponsors, though Bashour said it’s different from those entities because of its industry experience.

Payne, Rawlings, Bashour and Yoffe have all been working together for decades and have learned how to best delegate to play to each other’s strengths. With varied experiences across industries, the partners allocate who takes point on specific deals.

All four partners are excited for the future of the firm. Rawlings said he likes uncovering the niche of America that CIC has tapped — entrepreneurs of the smaller businesses that haven’t been in the spotlight as much. Yoffe said his passion is helping the businesses on the operational side build growth and strategy. Bashour said he loves making the connection between the investors and the platforms, celebrating successes together.

Payne is proud of the company they’ve built and enjoys watching the internal team continue growing and working together.

“One of the things about partnership is trust,” Payne said. “And I think, because we all have the same financial incentives because we've worked together so long, we trust each other.”

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