Neal St. Anthony, Star Tribune March 27, 2022
SMART CARE | Bill Emory, chairman of Smart Care
Smart Care was hit hard by the pandemic shutdowns of 2020.
The Ecolab spinoff repairs commercial kitchens, most of which were shut down at least temporarily as COVID-19 cases rose in the U.S. The company’s revenue had dropped 60% by April.
Management took pay cuts of up to 25%. Nearly 20% of employees were laid off. Those who were left were cut to 32 hours a week. Since Audax, a deep-pocket private-equity firm, purchased Smart Care in 2018, the company did not qualify for government aid.
Yet the company made it through the debilitating first year of the pandemic, with candid communication and an employee ownership program that went into effect Valentine’s Day 2020.
“It wasn’t transformational money,” said Smart Care Chair Bill Emory. “But it was something for an $80,000 technician with 10 years of service to get stock worth more than $9,000. Success is best when shared.”
By fall 2020, Smart Care, with kitchens reopening and business on the upswing, offered a job to every laid off worker who wanted one. Up to 80% returned. Every hourly employee got a bonus.
“The bonus didn’t make up for their sacrifice, but it was something,” Emory said.
Smart Care and its people adapted to trying times.
And the stakeholders in Smart Care have done pretty well in the ensuing couple of years.
Earlier this month, Audax sold Smart Care for an unspecified amount. Audax has indicated that its Smart Care investment proved an above-average performer and that its fund investors have made up to three times their money overall.
The stock issued to hourly employees in 2020, worth virtually nothing then, grew to $2.5 million.
“I was laid off in 2020 and it hurt,” said George Simmons, a 10-year master technician.
But he said Emory was candid and accessible. He also got his job back within six weeks.
“Then they told us the same day as we learned about the acquisition about the value of the stock,” Simmons said. “It was like a big-time bonus. … Every company should do this. It’s the employees that keep companies running.”
The new owner is Wind Point Partners of Chicago, which merged its Illinois-based Zone Mechanical, a provider of refrigeration and HVAC services, into what is now called Smart Care Care Climate Solutions.
Smart Care, which spun off from Ecolab in 2017, grew to 1,400 employees last year, both organically and through acquisitions of smaller players. It is now the institutional kitchen industry’s largest maintenance provider. From 2018 to 2021, revenue has more than doubled to $300 million.
The combined firms had combined 2021 revenue of around $400 million.
“We’ll be in the range of $500 million in revenue this year,” said Emory, CEO until the latest merger and now chair of the consolidated Smart Care operation.
In St. Paul, Smart Care has grown from 40 to 120 employees since 2018 and is the flagship tenant of the refurbished downtown entrepreneurial center Osborn370.
Smart Care also exemplifies how a small outfit, within a huge company such as Ecolab, can prosper with fresh capital from a growth-oriented investor and a new identity.
Audax bought Smart Care with designs to expand it through consolidation in a highly fragmented industry estimated at $7.5 billion in sales. The private-equity firm invested nearly $20 million during its ownership to help Smart Care build the technology infrastructure and people it needed to expand successfully.
“After 14 acquisitions we have, more or less, a national footprint,” Emory said. “And we entered adjacent services [through Zone Mechanical] in the grocery business, including Walmart, Albertsons, Kroger and Whole Foods in certain markets.”
The Smart Care model also helped drive the record 2021 mergers and acquisition market in the United States.
Audax picked a good time to sell, too.
Sale valuations rose in 2021 for well-performing companies. Overall in the U.S. the aggregate deal value was $2.8 trillion, a 40% increase over the previous year, according to research by investment banker Baird. That was a rebound from the first year of the pandemic.
“We are seeing corporate spinoffs being a big part of the playbook for private-equity clients as they look for platform opportunities” or add-on acquisitions for growing portfolio companies, said Sean Kearney, a veteran M&A lawyer at Fredrikson & Byron who has represented Audax and others. “They can focus on a particular market segment that may not have been fully exploited when it was a small piece of a much larger entity and possibly didn’t get the attention and resources [merited] as a standalone platform.”