Family Offices on Axial: Spotlight on Patoka Capital
“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.