Tarquin building value, one orphan at a time

By KRYSTLE CHOW
Published in the Ottawa Business Journal newspaper and website.
April 30, 2007

Click here to view this article on OttawaBusinessJournal.com.

Tarquin Group CEO Don Gibbs.
Tarquin Group CEO Don Gibbs.
Photo by DARREN BROWN for the Ottawa Business Journal

Don Gibbs, chief executive officer of Tarquin Group, says the industrial technology company picked its name because Tarquin – one of the last kings of Rome – was a builder, and the company is looking to follow in his footsteps by building value bit by bit.

Tarquin Group, which began its life as capital pool company Growthgen Equity Inc., recently began making its mark on the local manufacturing technology scene when it bought two Ottawa companies and announced plans to raise about $5 million through a private placement.

The company bought laser applications technology startup Process Photonics in March, then turned its attentions to food inspection systems maker DIPIX Technologies Inc. earlier this month.

“Process Photonics epitomized the type of company we were looking for, having sold a $400,000 laser drilling machine despite competing against $3-billion companies,” says Mr. Gibbs. “And DIPIX is a market leader … with a customer base that reads like a who’s who of the baking industry.”

Mr. Gibbs says the two companies fit into Tarquin’s target profile of firms with “world-class markets and products, and blue-chip customers,” as well as into the two “pods” which the company is focusing on – laser applications and test and inspection systems for the manufacturing industry.

He says Tarquin Group is looking for undervalued orphan companies with the potential for organic growth, but are finding it difficult to obtain capital on their own to expand their operations. These companies would have an existing management team and be able to run autonomously, but Tarquin Group would have a symbiotic relationship with the firms by providing resources and funding in exchange for ownership.

“Because of the dynamics of the marketplace, there are a lot of orphan companies which are looking for an exit strategy, whether it’s issuing an IPO or being bought up,” explains Mr. Gibbs. “Today, you can pretty much forget about the IPO, so what we do is become a vehicle for getting these companies out of the box and getting liquidity for shareholders.”

Tarquin’s goal, he says, is to assist these companies in achieving organic growth by giving them capital and resources such as management and sales assistance, and the company is focusing on fast-growing industries with tech solutions which can increase yield and profitability.

The company’s strategy isn’t an unusual one, being a standard roll-up business model which has been particularly successful in the software industry.

However, Tarquin Group is unique in the Canadian industrial technology sector, with only two other companies like it in North America – Florida-based Roper Industries Inc. and Illinois Tool Works.

“The opportunity is vast: Illinois Tool Works has 750 companies under its umbrella, and both of those companies have more than $1 billion in revenues,” says Mr. Gibbs. “There are not a lot of companies (using that model) in industrial technology. It’s very attractive to investors and I had expertise in the field, so it was a natural choice.”

Ottawa Manufacturers’ Network (OMN) chair Bill Halstead says companies like Tarquin Group are particularly good for the local sector because they keep head offices in the city, which helps preserve a “critical mass of manufacturing” in Ottawa.

“It’s really important to have the senior management decisions happening in Ottawa,” he says.

Meanwhile, Roy Sunstrum, head of the OMN’s programs and services team, says the space that Tarquin Group is entering is an interesting one, and hails the company’s plans as a positive sign for Canada as a whole.

“It’s always a challenge for companies to get capital at any stage, and it’s really too bad when small and medium Ottawa companies are sold off to foreign entities, so it’s always positive to hear of Canadian companies doing the acquisitions,” says Mr. Sunstrum. “It keeps the activity and eventual profits within the country.”

Those profits could be huge, if revenues at Tarquin Group’s competitors are anything to go by, and Mr. Gibbs is “fairly confident” that revenues at the company will double in the next year.

“At the early stages at least, growth is going to be exponential,” says Mr. Gibbs.

He adds that Tarquin Group is looking at growing its two pods by acquiring more companies in North America within the next three to five years. Tarquin is currently interested in two Canadian public companies, another public U.S.-based company and a few other private companies.

As well, the company is exploring the possibility of acquiring firms that supply equipment to semiconductor makers, as well as the medical device field, although Mr. Gibbs says these plans are “not firm” at the moment.

Ultimately, it’s a story of opportunities all around for both the small companies being bought up and for Tarquin Group itself.

“There are a lot of very good technology companies out there caught in market dynamics and looking to break out of that box,” he says. “We’re going to give them that opportunity.”

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