Tide Rock Brings Un-LBO Model to Founders

Founder and CEO Ryan Peddycord discusses the strategy of backing founders from IT asset management to seed coatings, without taking on debt.

In more than a decade of investing, Tide Rock Holdings LLC has specialized in founder-owned companies.

"That's all we acquire," CEO Ryan Peddycord said. "We work with founders that are looking to exit the business in some form or have hit a place where they need support to be able to get to that next level."

The Solana Beach, Calif., firm focuses on areas such as manufacturing, value-added distribution and B2B services. Portfolio companies range from IT asset management to mattress recycling and seed coatings.

Regardless of sector, Peddycord said, founder-owned companies have commonalities.

"They tend to run them similarly, and some tend to have similar strengths - usually on the quality of the products and services - but also have similar gaps that they could use improvement on," said Peddycord, pointing to the firm's ability to help step up a company's professionalism of accounting or to build out sales and marketing teams.

Firm at a Glance:

• Portfolio profile: specializes in founder-owned companies
• Financial model: makes unlevered investments
• Sectors: manufacturing, value-added distribution, B2B services
• Scale: $2 million to $10 million in Ebitda, according to firm website
• Team size: 45 members

Tide Rock has more than 100 modules that are used to benefit founders, such as sales modules that cover key performance indicators, account management and new business development. Legal modules, meanwhile, include contract management and negotiation.

The Un-LBO ModelTide Rock's model has another distinguishing nuance in addition to its focus on founder-owned shops. The firm doesn't use debt in its transactions.

"We've always been unlevered," said Peddycord, who founded the firm in 2013. "When we're buying founder owned businesses that do $3 million to $10 million of Ebitda, not having debt creates a lot more flexibility," he said. The lack of leverage reduces balance sheet risk and allows the company to invest money that would go to interest payments.

The model also frees up capital for investors.

"Our investors are getting a quarterly yield distribution," he said.

Tide Rock seeks companies that have really reoccurring sticky customers, are resilient because they have diverse customers or operate in an industry with low volatility and that sell essential products or services to strong reoccurring customer bases.

Portfolio company Seawind Foods demonstrates the growth potential. The San Clemente, Calif., producer of dehydrated fruits, vegetables and spices has grown Ebitda ten-fold since the 2013 acquisition and grown revenue by more than 2.7 times.

"Our average growth across every business we've owned is over 30% a year," Peddycord said.

"We're usually taking businesses that are not growing when we get them," he said. "They've been around two decades and they're still at this size. At some point they really started to level off."

Tide Rock brings a founder's perspective.

Peddycord founded a company called Resource Nation in 2006. The business acquired Business.com Inc. from RH Donnelly Corp. in 2011 and sold to digital content and commerce company Purch in 2016.

Additionally, Tide Rock President Brooks Kincaid was a co-founder of energy storage company Imprint Energy, and COO and CFO Tim Mullany was the CEO at a regional restaurant group.

Case Study: Premier LogiTech

The most recent example is Premier LogiTech, which the firm acquired over the summer.

The IT asset lifecycle management, or ITAM, company works with large IT manufacturers.

"Maybe they have a large client like the US Coast Guard and the US Coast Guard says, Hey, we want these computers or phones configured a very specific way, both hardware and software," Peddycord said.

Premier LogiTech would configure the gear and manage logistics of sending it to the customer, and can handle repairs and recycling.

Tide Rock has already helped Premier LogiTech land Motorola Inc.

"Motorola said, we need somebody that can be able to go do this at this scale," he said. "We're not comfortable giving you a contract of this size, as you said today, so you need to go get some funding."

LogiTech settled on Tide Rock, which helped win over Motorola. "We love the stability of them being a much larger organization," he said, paraphrasing Motorola's response to the funding.

In the founder-owned niche, he said, the depth of Tide Rock's 45-member team stands out.

"Once we got it to the scale that we have now, it gives us a huge advantage over anybody else that may be in this space," Peddycord said.Meanwhile, he said, foregoing leverage hasn't inhibited Tide Rock's ability to finance deals.

"We have never, in 11 years, been short of cash that we wanted to deploy," he said. "We have a lot of dry powder now from people that are waiting to come into our model."