Surge PE, an independent sponsor, closes first deal, Busy Bee

Millennials are launching their own firms, too!

Surge Private Equity, founded over the summer by two 20-something executives, unveiled its first deal this week.

On Nov. 21 Surge PE said it was buying Busy Bee Cleaning. Terms weren’t disclosed. The Dallas PE firm bought a majority of the commercial-janitorial-services provider, according to Tom Beauchamp, a Surge partner. Busy Bee Founders Greg and Fatima Wiszniewski will stay on as CEO and COO and retain a stake, the statement said. The deal closed Nov. 16.

Busy Bee is “a very rapidly growing business and it has a very diverse customer base with high recurring revenues,” Beauchamp told Buyouts.

The company employs more than 200 and has more than 1,000 customers, Beauchamp said. The investment is counter-cyclical because in a recession “people don’t tend to fire their cleaners,” he said.

Beauchamp and Lewis Sharp, also a partner, launched Surge Private Equity in July. Both Surge executives invested in the deal along with Greg Wiszniewski. Surge also raised capital for the transaction from a small group of outside investors, mostly entrepreneurs and high-net-worth individuals, Beauchamp said. “When you are talking about a company this small, you don’t need a lot of money to be an investor,” he said.

Micro market

Surge focuses on the micro market, targeting small companies with $10 million to $20 million in enterprise value, or $2 million to $5 million in last-12-months EBITDA. The PE firm seeks to invest from $2 million to $4 million equity per deal, Beauchamp said. Sectors include online businesses, business services and healthcare.

Beauchamp and Sharp started Surge because they felt the micro market was underserved. The middle market, defined as deals up to $1 billion, is crowded with buyers hunting for acquisitions. Multiples in the middle market average around 7x to 10x, Beauchamp said.

By comparison, the micro market, which Beauchamp defines as transactions up to $20 million, has fewer buyers but more companies for sale. Micro-market multiples are lower, about 3x to 5x, which produces higher IRRs, starting at 20 percent, and doubling when leverage is added, Beauchamp said. “You can get really high returns because multiples are so low. That’s why we started our firm,” he said.

He stressed that Surge PE invests in companies with strong credit profiles, like Busy Bee. “They have really high customer-retention rates, which is the primary thing lenders look at,” he said.

To find Busy Bee, Surge looked at hundreds of companies. The firm narrowed the list to 10 possible investments. A broker, Inbar Group, introduced Surge to Busy Bee, Beauchamp said.

Fundless sponsor

Beauchamp wouldn’t disclose exact ages, saying only that the founders are in their “late 20s.” The executives each have less than five years in private equity.

Beauchamp started off as an audit associate with KPMG before working as a PE associate with glendonTodd Capital and a fund analyst with Highland Capital Management, his LinkedIn profile said. Sharp’s PE experience includes working as a PE associate with Halifax Group and an investment banking analyst with Raymond James Financial.

Surge PE has no interest in raising a fund. The firm’s investments are small enough that it doesn’t need such “deep, committed pockets,” Beauchamp said.

“Even if we did really well, and all of our deals just killed it, not right now,” Beauchamp said of raising a pool.

The executives chose the name “surge,” and its ant logo, because the insect symbolizes their investment thesis. Ants may be tiny but they can lift 10x their weight, Beauchamp said. “That’s what we try to do,” he said.

Executives for Inbar and Busy Bee could not be reached for comment.

Action Item: Contact Tom Beauchamp at tbeauchamp@surgepe.com

Photo of ant carrying a large leaf courtesy of Boogich/iStock/Getty Images