Data & Analysis

SKYTRAC Systems Limited: Behind The Deal With Roynat Equity Partners

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On Oct. 242017, Roynat Equity Partners announced the sale of its equity ownership interest in SKYTRAC Systems Limited to Drew Marine, a portfolio company of The Jordan Company.

Roynat Equity Partners acquired its equity stake in SKYTRAC in 2012 in support of a management buyout.

SKYTRAC is Kelowna, British Columbia-based developer and manufacturer of full-service data-driven business solutions to the non-scheduled commercial aviation industry. SKYTRAC serves over 6,500 global users with flight following, flight data and communications technology.

The CVCA caught up with Roynat Equity Partners to discuss the details of the deal.

Why did Roynat choose to initially invest in SKYTRAC?

SKYTRAC was a profitable, high margin business operating in a highly regulated sector with very significant barriers to entry. We saw an opportunity to partner with a skilled key executive inside the company (Malachi Nordine, Head Of Operations) to buy the business from the owner-operator, who was looking to retire.

SKYTRAC has a scalable business model supported by strong underlying industry dynamics and continued global growth. We saw that with proper direction and mentoring of the existing management, SKYTRAC would be able to realize its full potential.

The aerospace industry is highly regulated. Government approvals and certifications of equipment and services create strong barriers to entry. SKYTRAC also had key OEM factory positions of their products. This is rare of for a company of that size. The company had a base of predictable monthly cash flow on which to build, with an unusually sticky” customer and revenue base. SKYTRAC had a highly technically skilled team with advanced in-house R&D capabilities and a proven track record of continuous product innovation. The SKYTRAC employees were/​are passionate in their desire to solve customer problems. They are disciplined in their execution and have a strong entrepreneurial culture.

Why did Roynat choose to exit SKYTRAC?

SKYTRAC’s revenue and installation base had grown to the point where the company’s brand was well-regarded throughout the global aerospace sector. We were receiving unsolicited expressions of interest from suitors around the world. The market was telling us it was time to think about crystallizing our investment. The timing of our exit also coincided with our average hold period (five years). We believed that in the hands of the right strategic partner, the company could reach a new level of customer such as large scheduled carriers.

We partnered with a highly reputable investment bank (Philpott, Ball & Werner) who had deep aerospace connections and gave us confidence we could execute on a successful exit. They delivered and ran a very good process for us.

How has SKYTRAC grown because of Roynat’s initial investment?

During our ownership, and with buy-in from management, there was a steady change in culture from a hardware-centric manufacturing company to a sales-driven high value-services company. Several key senior management positions were added to help build depth in the organization. The company also achieved industry recognized AS9100 (Aerospace Quality Management System ISO) certification which is a notable accomplishment for a company of SKYTRAC’s size.

The company invested in training of its employees to align with a services model that continued to build on the strong recurring revenue model. The company’s mission statement evolved to creating customer value through intelligent connectivity.” Several new high value-added services were added to the company’s product portfolio.

The company strategically ceased manufacturing its own hardware in 2014, and seamlessly implemented the outsourcing of this function. This allowed internal resources to be better focused on services. A complete re-branding and re-positioning of the business took place at the same time, which was well received by the aerospace industry. The board of directors was strengthened with deep aerospace experience and contacts, and the sales strategy of the company was completely overhauled. Revenues have almost doubled since 2012, and EBITDA has almost tripled.

What was Roynat’s experience with the management team?

When we made our initial investment, we were well aware of opportunities to deepen the management team around Malachi. As such, we brought in a seasoned aerospace executive (Stephen Sorocky) as interim CEO to lead the strategy and to assist Malachi’s development. We also made investments in finance and accounting (new VP Finance), sales and marketing (VP Sales – new position).

We were very impressed when the management invested their own money into the company. This showed a commitment to succeed and a culture/​willingness to work through challenges and difficulties.

In its other core functional areas such as engineering, installation, product design, software management and customer service, SKYTRAC has long benefitted from a loyal and skilled team of lieutenants focused on execution. The company has a strong VP Finance, and its VP Sales is a star who is driving growth to new levels. Malachi has developed strongly over our five-year partnership and is now the leader of the SKYTRAC team in all aspects and is the driving force of the company.

Do you see opportunities to invest in similar companies in the future?

We are of course restricted from investing in highly similar companies due to our non-compete, however, we are actively looking at exciting opportunities in other sectors of the aerospace industry.

Is there anything particularly interesting about this exit that Roynat would like to emphasize?

All of the staff has remained intact, and the business continues to be run from Kelowna, BC. The SKYTRAC brand is maintained and the company now has channels to market with new partnerships. Key management were enticed to invest alongside Roynat at the same valuation and all wrote material cheques. Furthermore, an option pool was established to further incent these key people. This financial arrangement has led to a recent life-changing event for our operating partners through this divestiture.

Malachi is still passionate about the business and he and his management team are working to take SKYTRAC to the next growth stage.

Outside of the financial return, what other significant impact has SKYTRAC made in its community that is worth noting?

SKYTRAC has developed deep roots in the Kelowna area going back more than 25 years. It typically hires its new recruits from the tech schools and universities in the area. SKYTRAC’s annual co-op contingent is by referral only, with engineering professors often personally recommending students to come and work for SKYTRAC. Given that it is well known that meaningful, real engineering work is done at SKYTRAC as a co-op student, there is often a lineup of co-op candidates. SKYTRAC is very involved in the community, and encourages volunteerism through Volinspire.

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