Irvine IT services provider Trace3 could change its long-held growth strategy under the financial muscle of new private equity owner H.I.G. Capital.
“We have the ability to look at various markets and groups and even competitors if we want to do that,” Chief Executive Tyler Beecher said. “It just makes us a lot stronger if we do view someone that we’re interested in.”
Trace3, launched in 2002 by entrepreneur Hayes Drumwright with $100 in his pocket, has zoomed past $500 million in sales without an acquisition. The value-added reseller has relied on a network of technology consultants that sell goods and services to businesses in its ascension to one of the fastest-growing companies in Orange County. But under new majority owner H.I.G., the company can aggressively target new areas of growth from within or shop around.
“More than anything, just having guys who are connected with very deep pockets backing Trace3 is a very good thing,” Beecher said.
Indeed, the Miami-based private equity firm has more than $21 billion in equity capital under management, with investments in about 200 companies. The value of the Trace3 sale was not disclosed, but H.I.G.’s majority stake included adding five board members. It has been referred to by The Wall Street Journal as the “Blackstone Group of the midmarket.” Blackstone is generally ranked among the top three of private equity firms in the world. H.I.G. co-founder Sami Mnaymneh is a former Blackstone director. He and Bain & Co. grad Toni Tamer started the Miami dealmaker in 1993.
Drumwright, who has been busy working on two separate business ventures—a high-end winery in Napa Valley that he formed with two school friends and a crowdsourcing startup called POP—retained his position on the board.
He also runs InstantScale, which has invested over $5 million into more than a dozen tech companies, primarily in Silicon Valley and the Bay Area, since its 2010 launch. The companies’ technology has been vetted by Trace3 customers and accredited investors.
The entrepreneur looks to have another win fermenting with Memento Mori, which specializes in bold cabernet sauvignons and has quickly built a name for itself in Northern California’s competitive wine country. POP, which raised $6 million in 2015 led by Silicon Valley venture capitalist Nexus Venture Partners, has notable customers that include DirecTV, Red Robin, Taco Bell, Ford and NASA.
Not all of Drumwright’s ventures are winners, though. At 25, he launched Tech Fuel, an Irvine value-added reseller that raised $7 million from angels and venture capitalists. The business crashed when the tech bubble burst, and Drumwright lost nearly everything.
A year later, he was back on his feet after a stint in sales at another IT service provider.
An H.I.G. press release in June announcing the Trace3 investment indicated Drumright would remain a “significant shareholder” in the firm he founded.
Drumwright declined an interview request for this story.
Bridled Growth
Trace3, which has about 2,000 customers, had been courted by venture capitalists and private equity firms for years but denied other potential backers over concerns of changing the brand and business model, according to Beecher.
It’s privately held but has maintained to the Business Journal that it’s been profitable since inception. It has companywide employment of about 400, with a high percentage of those jobs in engineering. The company employs about 120 in Irvine.
Trace3’s revenue is generated entirely in the U.S., with California accounting for about 75%, Beecher said.
H.I.G. not only has deep pockets but also connections to a host of potential customers across the nation as Trace3 evolves into more of an operations company.
“We are much more focused on helping clients grow, and profitability is a much bigger focus,” Beecher said. “We’re much more selective than we were a few years ago.”
