Private equity fund takes hands-on approach to investments

Sioux Falls’ Badlands Capital emphasizes ac tive involvement in por tfolio companies

BY KRIS BEVILL

After s p en d i n g 1 7 ye a rs i n Ch i c a go ’ s investment banking and private equity s e c tor, S o ut h D a ko t a n a t ive Bl a i n e Crissman returned to his home state two years ago and launched his own private equity firm, Badlands Capital

The Sioux Falls-based firm is focused on investing in mid-sized ($10 million to $40 million in revenues) value-added manufacturing and business services companies located in the Midwest and northern Plains. Crissman says his experience in managing por tfolio companies scattered throughout the countr y during the recession taught him that private equity investors need to be actively involved in their companies, so he plans to take a hands-on approach to the management of Badlands Capital companies. Therefore he will cap his investments at two to three companies located within a 400-mile radius of Sioux Falls, primarily in second-tier communities in the Dakotas, western Minnesota, Iowa, Nebraska and Colorado.

“Once you get into central and eastern Minnesota, there’s plenty of money there already,” he says, adding that a key part of his investment strategy is finding niche manufacturing or business services companies located in communities that are large enough to enable growth and attract a talented workforce, but small enough to avoid auction-type scenarios where the highest bidder wins “I’m looking more to partner with a current owner or owner-founder who started a business 30 years ago and doesn’t know how to monetize and retire or maybe doesn’t have a manager to buy the business from him,” he says.

In late October, the firm, along with Sioux Falls-based Nordic Venture Partners and Chicagobased Aldine Capital Partners, bought its first company Sioux Falls-based fiberglass storage tank manufacturer Design Tanks LLC from a private equity firm in Philadelphia The company, which generates about $10.5 million in revenue annually and employs about 45 people, designs and produces 50,000-gallon liquid storage tanks for the agriculture and industrial wastewater treatment industries, and both industries are stable and growing However, the company has a history of only passively marketing its products and Crissman saw an opportunity to change that. “They have a good reputation and the phone keeps ringing, but I think there are ways to be more outbound in sales and marketing, so I’ll be involved in that,” he says

One area of immediate potential growth for the company is in supplying the Bakken region, although Crissman is realistic in his demand expectations. “They’re the closest fiberglass tank manufacturer to the Bakken, which has had meaningful growth in demand for steel and fiberglass tanks in the last five to eight years, and Design Tanks didn’t sell any to the Bakken tank manufacturers from outside the region did,” he says “Some of that was strategy, some of it was they just didn’t have the relationships. Just because there’s a demand for product doesn’t mean you can go up there and sell it It is an opportunity but everyone is trying to glom onto it.”

Shortly after Badlands Capital purchased Design Tanks, the company began hiring for a second shift, a process which has been difficult due to the state’s manufacturing workforce shortage Crissman says that while he’s long believed the Great Plains could compete with China as the U.S.’s main supplier of manufactured goods, the lack of workers could soon hinder the sector’s recent growth in South Dakota “We’re at the functional floor for employment,” he says. “One of the things we ’ re running into as a challenge with adding a second shift is there are a lot of jobs like that, so everyone competes for the same labor pool. People are just trading employees and having to pay more for them ” And with typical wages for modestly skilled laborers at $10 to $14 per hour, Crissman is skeptical of the industry’s ability to attract new workers.

Marcia Hultman, South Dakota’s labor and regulation department secretary, confirms that manufacturers throughout the state are struggling to find welders and other production workers and are increasing wages in order to remain competitive.

Kim Olson, policy adviser to Gov. Dennis Daugaard, stresses that the skilled worker shortage is not an issue unique to South Dakota, however. “Although the tight labor market in the manufacturing industr y challenges grow th nationally, the state of South Dakota supports manufacturing development by working with businesses to increase the skills of our incumbent workforce, train additional individuals entering the labor market and recruiting skilled workers from other regions,” she says.

Meanwhile, Crissman will continue seeking investments in the northern Plains and beyond, focusing on his niche area and the advantage he has in being a local investor. “What I’ve certainly found is this region does not like carpet baggers,” he says “They want to be able to check you out by making two phone calls, not running a background check and talking with 10 people There are millions of dollars of capital available, and I think larger companies in our region could certainly attract interest from larger funds, but as far as people who live here and work here there are few funds focused on this area ” PB

Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com