BlackRock Long Term Private Capital bought a majority stake in Summit Companies, a fire-and-life safety service and installation company it believes is on a growth track to becoming the first such nationwide player.
The acquisition is the fifth to date and third this year for BlackRock’s perpetual capital strategy, LTPC, while providing an exit for CI Capital Partners. In approximately four years, the New York-based mid-market firm generated a gross IRR of 58 percent on the sale, a source familiar with the matter told PE Hub.
For LTPC, BlackRock’s only direct private equity strategy, Summit aligns with its MO of backing strong management teams in industries with a lot of white space for growth – in this case, fueled by underlying regulatory tailwinds and a vast consolidation opportunity, among other factors. Summit also sits at the intersection of two LTPC focus areas, industrial services and essential services, with its recurring revenue base adding further appeal, according to Colm Lanigan, head of BlackRock LTPC in the Americas.
“You have a company that’s in 20 states, but clearly there is no national provider in this space,” Lanigan said. With an open-ended investment horizon, he said, “we can give them the runway and capital to become that national provider.”
LTPC won a highly competitive Truist-run sale process encompassing about 10 bidders, Frederick Iseman, CI Chairman and CEO said. Showing conviction and moving fast to close a deal, LTPC ultimately emerged as management’s top choice, he said.
Owl Rock Capital and Macquarie Principal Finance provided debt financing for the deal.
Encouraged by its proven track record, LTPC is eager to build upon Summit’s historic growth and performance to “take it to the next level”, Lanigan said.
Under CI Capital, Summit grew from nine offices in five states to more than 50 offices in 20 states – servicing over 125,000 commercial, industrial, government, healthcare and multi-family residential facilities annually. It provides inspection, testing and monitoring, service and repair, installation, and consulting services for fire protection, life safety and security systems.
Reflecting that growth, Summit’s revenue CAGR was 43 percent under CI Capital, while its EBITDA CAGR was 64 percent, the source familiar said. Revenue increased by 3.5x, while EBITDA increased by 5.6x to approximately $50 million during its four-year-long investment period, the source added.
On the hunt
M&A has long been a growth lever at Summit and will remain one. Summit completed 55 add-ons under CI Capital, and today sits with a pipeline of some 40 identified acquisitions, according to CI Capital managing director Tim Hall, who led the investment.
“There are hundreds and hundreds of companies to buy of all sizes – some very small and some the size of Summit, and some that are bigger,” Hall told PE Hub. There’s a group of highly strategic acquisitions “that are big and BlackRock size but not CI size,” he added.
Lanigan said LTPC isn’t size or capacity constrained, but added that in addition to the large-scale opportunities, “there’s still this long tail of independent providers in [the midst of] generational changes that are looking and needing to sell… The customer is looking for regional sellers; they’re looking for someone who can provide a one-stop for all the services.”
BlackRock will also focus on helping with margin efficiency as Summit scales, Lanigan added.
CI Capital credits the Summit C-suite team, which, led by CEO Jeff Evrard, has proven very capable when it comes to M&A integration.
“Fundamentally we were buying small companies, and a lot of them, at a very high velocity,” CI Capital’s Hall said, noting that the average add-on was sub $1 million of EBITDA. “People want to sell their companies to [Evrard] because they trust him. He knows how to do it correctly, which is very important when you are doing that many. It’s easy to lose control.”
Strategically speaking, CI Capital supported the pivoting of Summit’s revenue mix. Once focused on installation, the company upped its exposure to mandatory regulatory recurring revenue.
“That worked quite well,” Hall said. “It not only increased our margins, but one of the things that was very helpful at achieving a sale at this point was how well it had done through covid.”
Looking ahead, the need to remain compliant with the safety and regulatory environment, technology upgrades, as well as enforcement by insurers, all remain in Summit’s favor, Iseman said.
“Regulation only increases in this business, it doesn’t go the other way,” Iseman said. At the same time, he added, the more advancements in technology or the more complicated a security system gets, the greater the demand for Summit’s services.
For LTPC, the deal follows its May acquisition of healthcare technology company Transaction Data Systems, which left existing owner GTCR with a minority stake. Others include family-run luxury fragrance business Creed; Authentic Brands Group, which owns a portfolio of 50 brands across lifestyle, sports, celebrity, entertainment and media sectors; and software provider Aquila Heywood.
BlackRock’s fund has the ability to recycle distributions and opens periodically for new fundraising. The initial round included more than 30 limited partners, PE Hub wrote previously. LTPC is approaching deal six or seven by the end of the year, while targeting 10 plus-or-minus in the first tranche of its fund, before adding more capital, Lanigan said.
BlackRock’s Private Equity Partners (PEP) business spans primary, secondary and direct co-investments. LTPC and PEP are both part of the BlackRock Alternative Investors platform.