Radial Engineering: Behind The Deal With Regimen Equity Partners
On Feb. 5, Vancouver-headquartered Regimen Equity Partners announced it had acquired, in partnership, Radial Engineering Limited, a lower mainland-based world-renowned manufacturer of pro-audio accessories and acoustical treatment products.
As part of our “Behind The Deal” series, the CVCA caught up with two of Regimen Equity Partners’ Managing Directors, David Eisler and Cooper Seeman, to discuss their latest acquisition.
Tell us a little bit about your sourcing for the deal?
When we look at a deal, we always look to partner with like-minded leaders in the respective area and this was no exception. In Mike Belitz, we partnered with an industry veteran, who was very experienced and knowledgeable in this space, and has been involved in this industry since early in his career.
I was introduced to Mike through a mutual contact and as we got to know him, recognized the possibility of a great fit on this transaction. Mike has been doing business with Radial for many years and knew the owner very well. We worked together to successfully transact the deal which saw Regimen acquire 75% of Radial and Belitz acquire the other 25% while stepping in as the new CEO.
What’s your view of the business short term and long term?
Radial was founded in 1991 by Peter Janis, and he has been growing the business ever since – both in revenue and in product set. Radial manufactures extremely high-quality products and accessories for the music industry; their products are known for their technical innovation, ruggedness, and reliability, and are considered by many to be the best in this category.
Peter has done an extremely good job of marketing those products in the industry–through musicians, sound engineers, and sound architects, as well as music enthusiasts alike – and has built a number of very strong brands as a result. We really like that solid foundation and believe that, in partnering with Mike, we have a great opportunity for growth – both in terms of sales in new areas, but also bringing new products (some currently in R&D) to market. Also, there are several companies that provide accessories to this industry and we think that over the next five to ten years, we’re going to find some good opportunities for further growth through acquisitions.
At Regimen, we take a longer view in terms of our investments than most private equity funds, and we think Radial is a great investment platform for us to grow over a long period of time.
The growth of Radial has been over 20 plus years since inception. It now has a footprint in over 60 countries. Do you have a line of sight into that growth story starting in Vancouver and growing to 60 countries?
I think it’s interesting that a local company has been able to penetrate all those markets and those regions, slowly and methodically over a 25-year period. I think it really speaks to the quality of their products as much as the innovation they’ve demonstrated in the new products they’ve brought to market. The fact that some marquee bands spec Radial products in their riders, which often is reported in various trade magazines, has certainly helped to foster their growth and strengthen the brand.
What do you envision the investment to be used for?
As founder, Peter was the 100% shareholder in the business and was looking for a succession plan. In partnership with Mike, we acquired all of Peter’s shares, allowing him to retire from the business with the peace of mind that it’s in good, caring, and experienced hands.
Every investor goes into a deal with an exit in mind. What’s your exit horizon? What’s your exit plan in the ideal world?
Unlike conventional private equity funds we look to invest over a longer term; our partnership is a 30-year fund, and our investment horizon is usually 15 to 20 years when we go into anything. We don’t go in with an exit for investments in mind—we look at our ability to grow the business organically, as well as through complimentary acquisitions. We look to eventually transition what’s a local company into a North American leading player in the space.
Once we’ve owned an investment for that long we will figure out what the exit is. We don’t have a specific plan in mind because markets will be different in 15 to 20 years’ time.
One of the things that we are doing is digging down into the portfolio company level and looking at diversity as well as the community impact that these companies are having in their localities. Can you share some of these figures about Radial with us?
Radial employs 75 people locally. In terms of the executive team, 25 per cent are female, and we’re looking to increase that over time.
The investments that we make start off as owner-operated businesses and usually those owner/operators are either retiring at the time of transaction or plan to do so within five to ten years. Diversity, if it’s not present at the time that we invest, is a priority for us as we grow the business.
We’re trying to delve into the community impact of our industry. Are there unique ways that you’ve seen Radial impact their local community?
Radial is headquartered in Port Coquitlam and approximately 90 per cent of the employees are based there. Radial utilizes a number of sub-contractors in the area. We like that it’s in our backyard and is helping to feed the local community. As a manufacturer of innovative products, Radial employs a number of engineers, technicians, manufacturing, sales and marketing professionals. The jobs at Radial are interesting knowledge-based jobs. During our due diligence it became clear that employees enjoy the company’s unique culture and the excitement that is inherent in the music industry.
We are very proud of this aspect of the business, not just with Radial, but with all five portfolio companies in our fund. All are headquartered in Canada, help to drive to local economies, and all of them have very similar origination and growth stories.
Is there anything that you want to highlight in terms of Regimen Equity Partners, its culture or investment philosophy?
Regimen Equity Partners is a private equity firm specializing in the ownership transition of small to mid-size organizations. With offices in Toronto, Edmonton, and Vancouver, Regimen’s portfolio companies span from British Columbia to Quebec. We help grow businesses through strategic acquisitions and building out management teams. We don’t follow the five to seven-year hold period that private equity firms typically plan on. We invest in companies with a view to own for 15 years or longer. This is not a traditional approach. It allows us to think and act like business owners.
Aside from the long-term focus of our fund, one of our core values is relationships are critical. In every transaction, we’re looking to build long term relationships with people like our partner in Radial, Mike Belitz. It’s important Regimen supports our partners in being as successful as possible with our investee companies. Their success breeds success for Regimen, and, ultimately, the kind of returns that we want to deliver to our investors.
How is your approach different compared to the other private equity firms out there?
Beyond the longer-term investment horizon, there are numerous things we do differently. We have a continuous fundraising model, which provides a lot of benefits to investors because we’re not open and closed every four to five years and we’re not blind pool. We find this to be an investor-friendly feature, and providing it allows us, again, to build relationships with wealth management groups and high net worth investors.
Also, even though we’re a smaller fund, we believe it’s important to have a presence across the country in order to build a diversified portfolio. We have offices in Edmonton as well as Toronto, and we’re headquartered here in Vancouver. Having a broad reach allows us to source nationally, as well as properly provide value and support to our business partners across the country.