Pareto’s road to Riverside was nine months in the making and, according to its chief executive, now means big things for a company eyeing global expansion and a free hand in dealing with an ever-changing marketplace.
Pareto president and CEO Kerry Shapansky told Marketing today that the company–which this morning announced it was set to be acquired by a subsidiary of private equity firm The Riverside Company–had received numerous expressions of interest throughout its 10-year history, but the sales process turned serious when an unnamed Canadian firm with businesses “complementary” to Pareto expressed interest in acquiring the company early last year.
Upon examining the deal, Pareto’s board of directors decided to explore what other opportunities existed for the company, and appointed Petsky Prunier Securities LLC–a New York-based investment bank that does extensive work in the marketing sector–to conduct a search for potential buyers.
Petsky Prunier approached 158 organizations that Shapansky characterized as “strategic buyers as well as financial buyers.” Fourteen of those organizations submitted bids that Pareto’s board pursued, with Riverside’s $108 million bid ultimately proving the most attractive.
According to Shapansky, Riverside offered the best value to Pareto’s shareholders and was the organization that management “felt best about in terms of being our partners for the next level of growth.”
Asked if Pareto’s management had given any thought to aligning with a marketing holding company, Shapansky said that Riverside offered more potential upside.
“We think there are lots of interesting opportunities for Pareto in Canada and beyond, and I think Pareto remaining as an independent platform, as opposed to being merged inside of an operating entity with other objectives and priorities, is great news for its clients and employees,” said Shapansky.
“Part of it is autonomy and part of it is around vision, having a really clear idea of how we want to move forward and grow in the market, and having a partner that embraces that vision as opposed to bringing a different vision and needing to fuse the two of those together.”
While Shapansky said that Pareto was “very very careful” in keeping the sales process secret, “unusual” trading activity around its stock forced the company last week to issue a release acknowledging that it had entered into exclusive negotiations with Riverside.
Shapansky said there will be no changes in either management or Pareto’s operational philosophy once the transaction is complete, though the company will now be privately held. Pareto currently employs about 250 full time employees across Canada, the majority at offices in Toronto and Montreal.
Pareto has been a “thinly traded” company since its formation about 10 years ago, and the Riverside deal provides some liquidity for shareholders, Shapansky said. “Material shareholders have not had much of an opportunity to get their money out, so this was about providing them that opportunity at good value and providing the right kind of platform for the company to be able to grow on an ongoing basis,” he said.
Shapansky said the primary benefit of the Riverside transaction is that it will enable Pareto to focus more thoroughly on its business objectives and client service. “It’s getting more and more complicated to be a public company–we spend a lot of money and a lot of time and effort doing not just the financial reporting but all of the appropriate disclosures that are required… and frankly that doesn’t do a lot to benefit the business,” he said. “Often it’s telegraphing to our competitors what we’re doing and not benefiting Pareto at all.”
He said that being publicly traded often forces companies to be “myopic,” focusing heavily on quarterly results rather than making investments that could benefit the business in the long term. “This change will allow us to be able to look at the longer-term growth trends and opportunities that exist for the business and make some of those changes,” he said.
Riverside’s global footprint could also open the door for expansion into other markets, said Shapansky. However, he noted that Canada has one of the world’s best retail environments, providing “enormous potential” for domestic growth, and will remain Pareto’s “core focus” in the medium term.
Graham Hearns, director of marketing and communications for The Riverside Company (which is based in Cleveland, Ohio.) wouldn’t comment specifically on Pareto, but noted that the company employs a team of 25 specialists around the world whose sole focus is seeking out investment opportunities.
Pareto marks Riverside’s ninth Canadian investment in its 23-year history (out of more than 300 globally) and Hearns said it remains an attractive market for future expansion.
While characterizing Riverside as a “generalist investor” with an emphasis on the health care and education and training sectors, Hearns noted that the company has made some recent investments in the marketing-communications sector, including the 2008 acquisition of Tensator Group, a UK-based queue management company that has incorporated marketing into its products, and the Ohio-based WorkPlace Media, which specializes in at-work marketing.
Riverside specializes in acquiring what it calls “growing enterprises” worth US$200 million or less. The company made 24 investments in 2010, and Hearns predicted that that number would grow to between 30-35 this year.
