Introducing: Midwest Growth Partners
A venture capital firm for small family-owned companies seeking buyouts or growth
Friday, February 28, 2014 7:00 AM
The idea for Midwest Growth Partners materialized more than a year ago when Dustin Thomas and Mike Taylor were conducting due diligence for their respective venture capital firms – Capital Management Associates and Top Tier Holdings – to acquire Majona Steel, an Osceola steel fabrication plant.
Company: Midwest Growth Partners LLLP
Principals: Managing Partners - Dustin Thomas, Mike Taylor, John Mickelson
Operating Partners - Russ Taylor, Joe Greving, Jim Fogt
Niche: Providing venture capital for small family-owned businesses in transition
Accomplishment: $31 million in capital raised
Formed: November 2012
“We realized it was a really good synergy,” Thomas said. “It led us to realize it would be a great idea for the Top Tier and CMA teams to join forces.”
A lot of the groundwork had already been laid by Thomas for a firm that could lead in deals as a majority owner, said Taylor, who brought in John Mickelson as a partner to complete the team. “I’ve known John personally and professionally for several years,” Taylor said. “I just went recruiting to create the right team for what our investors want to do and what the effort is designed to do.”
With $31 million in capital raised, the Des Moines-based firm plans to invest in companies in the food and agriculture, distribution, manufacturing and business service industries.
In addition to the three partners, investors in the firm include Central Iowa Power Cooperative, as well as “a large agricultural commercial bank and successful Central Iowa entrepreneurial types.”
The company provides private equity investments in small family-owned businesses that are seeking a buyout or to transition to new owners. Or ones that need capital for continued growth or to provide owners with increased liquidity. To do that, it is building a series of investment portfolios of between 10 and 15 companies in which high-wealth, qualified investors can participate.
“The traditional private equity funds just aren’t calling on the markets we’re going to call on,” Mickelson said. “We think there’s 100,000 companies that would fall within our target market; we hope to invest in 10 to 15 of them. There’s a lot of need for succession planning for these baby boomer entrepreneurs who are retiring; we feel we can create some synergies by calling on them. And it’s an underserved area; we want to help the communities. The fact is, if some of these businesses leave the communities, the jobs go with them.”
Additionally, “if there’s a company that’s growing very fast and they need capital to continue growing, we can do that too,” he said.
The typical deal size will range from $500,000 up to $5 million, with some ability to go beyond that if its investors choose to co-invest on an investment.
Owners who have 100 percent of their net worth tied up in the company but who want to continue in the business another decade or so could also benefit, Thomas said. “We can give them some liquidity and also put some capital in the business to grow it at the same time and allow them to take some more risk without having 100 percent of their retirement tied up in just one asset,” he said.
The managing partners:
John Mickelson: After receiving an M.B.A. from the University of Iowa, Mickelson began doing merger and acquisition deals in Omaha with First National Bank of Omaha. He moved back to Des Moines in 2010 to join The Private Bank as a commercial lender. He has been a West Des Moines City Council member since February 2013.
Dustin Thomas: The Iowa native was raised in a farming community in north-central Iowa and graduated from Simpson College with a degree in economics. In 2010, he joined Capital Management Associates, the wholly owned investment arm of Central Iowa Power Cooperative. Thomas is a chartered financial analyst and also has an M.B.A. from the University of Iowa.
Mike Taylor: An Iowa State University graduate with an M.B.A. from the University of Iowa, Taylor co-founded Top Tier Holdings LLC, a firm that predominantly sought investment opportunities in acquiring and running companies. He started his venture capital career in 2003 with the acquisition of a retail pharmacy, which has since expanded to 16 locations.
Why it will succeed:
“The first mitigant (of risk) is that we’re not doing the early-stage companies; we’re not trying to identify the next Google,” Mickelson said. “The companies that we’ll be purchasing will be established and have revenue, so the chances of them going out of business are relatively small. With any investment, there is some risk, but we’ll be diversified within the fund. And I think with our track records we’ve been able to show a good return for our investors.” “Another mitigant is sourcing the right types of deals in the first place,” Thomas said. “We’re going to look at companies where we can add some value and where we can see a path to how we’ll exit that deal in a reasonable time period for our investors.”
Central Iowa Power Cooperative (CIPCO) has been doing similar types of investing since 1992, Thomas said. “So this is really an expansion and continuation of that,” he said. “With Midwest Growth Partners, we can do larger deals now, and we can also do majority investments, whereas typically the CIPCO portfolio has just been minority investing in the past. John and Top Tier bring that majority investor expertise into the fold. Now we can be a sole-source investor or we can co-invest with other funds as well. It opens up a larger opportunity and types of transactions that we can undertake.”
The initial group of investments will be the first of several portfolios, Mickelson said, rapping on the wood of the conference room table.
“Our goal is to hit this fund out of the park for our investors,” he said. “We’re here in Des Moines and we’re young guys, so we want to create an enterprise where we’ll have another fund, and hopefully another fund after that and continue the success.”
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