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Closed Deal Case Study: Elvisridge Capital & SurfaceLogix
I had a boss in a previous life who often liked to remind our team that “financial alchemy can only get you so far in the world of private equity.” He’d continue, “few things trump the value of hands-on operational experience and industry expertise.”
Michael Southard, founding partner at Elvisridge Capital, is a prime case study in the validity of the above adage. After spending 20 years building out the landscaping division of a family-owned lighting business, Mike decided to leverage his expertise by founding a niche private investment firm focused on the landscaping space.
Middle Market Review recently sat down with Mike to learn more about Elvisridge’s recent acquisition of SurfaceLogix, a 70 year old manufacturing business producing products for pavers, stone and concrete surfaces.
MMR: Mike, thanks so much for sitting down with Middle Market Review. Tell us about yourself and Elvisridge Capital.
MS: Thanks, Dani. Before establishing Elvisridge Capital, I spent over 20 years with a family-owned lighting equipment manufacturing business where my focus was on building the Landscape Lighting division. We subsequently sold the business to a Fortune 500 company in 2018, at which time I founded Elvisridge Capital, a private investment firm offering operational expertise and strategic resources to the companies we partner with. Our preferred investment sectors are Sportfishing and Landscape supply products.
MMR: Those are two pretty specific focus areas. Can you talk more about that?
MS: My 20-year background in lighting was focused on developing our Landscape Lighting business by selling the product into the landscape wholesale channel to landscape contractors and landscape lighting specialists. I know the industry well. Our focus on the Sportfishing sector resulted from my partnering with the owners of Blackfin Rods, a manufacturer of high-quality fishing rods made in the USA for the Sportfishing industry. After having success in expanding Blackfin’s product lines and increasing revenues and profits, we decided to focus on building a stable of premiere fishing brands, with Blackfin being the Platform investment.
MMR: You acquired SurefaceLogix in October of 2020. Tell us more about the business and the thesis behind the acquisition?
MS: SurfaceLogix is a maker of decorative and maintenance care products for pavers, stone and concrete surfaces, which fits perfectly into our focus of acquiring manufacturing companies in the Landscape product sector. Our strategy with SurfaceLogix will be to continue to grow distribution within the Florida market and other states in the Southeast. We will also focus on adding new complementary product lines to their offering.
MMR: Was the business impacted by Covid-19?
MS: No, it was not. As a matter of fact, sales increased throughout the pandemic and continue to do so. I believe with homeowners being home more, they were able to focus on home improvement projects, which positively impacted the sales of our products. The team at SurfaceLogix has done a tremendous job of continuing to grow sales during a very challenging time.
MMR: How did Covid-19 impact the timeline of the transaction? What about this process was different than non-pandemic deals you’ve done in the past?
MS: I don’t believe the timeline was affected a great deal. The due-diligence process was slightly impacted as we had to do most things remotely. While we did visit the facilities and meet with the owner, time spent at SurfaceLogix prior to the close of the transaction was definitely more limited because of the pandemic.
One of the only real noticeable differences between this transaction and others we’ve done in the past was the challenge of recognizing the PPP loan that the company received, specifically related to its impact on the valuation and balance sheet of the business. This is likely something that plenty of acquirers will have to deal with over the next few years. It all ended up working out just fine but it was a wrinkle brought on by the current environment we still find ourselves in.
MMR: What ultimately led to you getting the deal done?
MS: John Daly, the owner of Surfacelogix, and his advisor at First Choice Business Brokers were very easy to work with and were well prepared with what we needed in terms of information to properly evaluate the business. John continues to run the business today. Axial obviously played a pivotal role in the transaction by connecting us with Surfacelogix (through their advisor) back in March 2020.