Patoka Capital is the direct investment arm of the Ragains family office based in the Louisville, KY area. The Ragains family founded, developed, and operated the Great Escape Theatres chain, one of the largest movie theater companies in America at the time of its sale to Regal Entertainment Group in 2012. Chance Ragains, CEO of Patoka Capital and former COO of Great Escape, and his mother Anne Ragains, Patoka’s Chairwoman Emeritus and Founder of Great Escape, are now focused on partnering with entrepreneurs and helping them scale their businesses.
“The birth of Patoka Capital was a natural evolution after the Ragains family sold their Great Escape Theatre business,” said Dan Von Behren, Patoka’s Co-Managing Director. “Along the way, the Ragains family had made de facto private equity investments on an opportunistic basis. They had pursued some of those opportunities and had success.”
Today, with $200 million AUM, Patoka is always looking to expand its portfolio through direct private equity investments. The family has a target of ultimately having 70% of their assets in direct investments. Von Behren highlighted the reasons behind the family’s strong interest in private equity direct investment: “direct deals offer the highest risk-adjusted returns, and with the family’s background in entrepreneurship, it resonates with them to be able to decide exactly where they’re investing and continue to grow those businesses.”
In June 2017, the firm closed on a direct investment in Murfreesboro, Tennessee-based Cyber Sciences, a leading manufacturer of high-quality precision timing products for monitoring and control of electrical distribution systems for data centers, hospitals, microgrids and other critical power facilities. Patoka was connected with Cyber Sciences earlier in 2017 through the Axial platform.
“When the deal teaser was first shared with us, we were intrigued,” said Seth Sokoloff, an associate at Patoka Capital. “Cyber Sciences fits the profile of a growing, competitively differentiated company in our size and geographic scope, and there was overlap between their business and Dan’s background.”
For every investment Patoka makes, the firm has a scoring sheet with the different categories that they keep in mind when evaluating a deal. Specifically, Patoka looks to invest in US-headquartered niche companies with up to $10 million in EBITDA and durable competitive advantages. Industries of interest include manufacturing & distribution, retail & service, entertainment/media, and commercial and residential real estate. They are focused on investment opportunities in the Greater Midwest and Midsouth regions, ideally within driving distance or a short flight from the firm.
Cyber Sciences was attractive to Patoka because it develops its own intellectual property, including circuit board design and firmware code. “We thought that it was an advantage that it was marketed as a manufacturing company; if it was marketed on the West Coast as a technology company rather than a manufacturing company, it might have attracted frenzied auction activity, which we strive to avoid,” Sokoloff said.
Doing the Deal
WhiteHorse Partners is the intermediary that shared the deal with Patoka through the Axial platform and the investment bank that marketed the deal. “Axial has been valuable to us. As a relatively young brand, it is helpful to have Axial connect us with folks in this fragmented market,” Chance Ragains said. “The lower middle market, in general, is very fragmented with many small investment banks and business brokers with one or two people and they get some great companies.”
At the first management meeting, Patoka gained a more thorough understanding of the market and Cyber Sciences’ growth strategies. “We met with the company regularly for strategic planning during the due diligence process because we wanted to establish the post-acquisition strategy so that everyone was aligned once the deal closed,” said Von Behren.
As a fully-staffed family office, Patoka completed the due diligence process internally.
Post-close, Cyber Sciences, and Patoka Capital have been hard at work at executing their growth strategies, including broadening the product offering and driving additional sales.