Private equity investor John Clarey wants his next score to be an environmental company.
The founder of Irvine-based investment firm Clarey Capital Group LLC has made a career of technology investments. Now he’s switching gears.
“Everyone wants to be green,” he said, “but not everyone can do it profitably.”
His search for a small company with yearly revenue of $10 million to $50 million has lasted a year and a half and taken about a third of his time.
Clarey, 41, started his investment firm in 2000 after selling Irvine-based Telecore Inc. for $154 million to Florida’s Viasource Communications Inc.
His timing was just ahead of the technology bubble’s collapse, which led Viasource to file for bankruptcy.
Since then, he’s bought stakes in 10 companies, nine in technology and one in healthcare. Most of them have yearly revenue of less than $100 million.
Energy candidates are few and far between, according to Clarey. He’s looking at one locally that he won’t name.
“Companies that can reduce carbon emissions profitably will be in big demand,” Clarey said.
Services companies are attractive because they usually don’t require a lot of investment and are easily molded to fit the needs of the market, according to Clarey.
In 1994, Clarey created Irvine-based Spider.Net, which helped companies get on the Internet. Two years later he sold it for about $1 million.
In 1996, he founded TeleCore from a small office near John Wayne Airport.
What started as a technical staffing company eventually morphed into one of the country’s first DSL services companies.
Telecore would look at the deployment schedules of what’s now AT & T; Inc. and other phone companies and then send a team to those cities to build routers and interfaces for operators to use.
“It was a new technology,” Clarey said. “We saw Wall Street was coming to chase it.”
Clarey Capital goes after small, established companies that are under the radar of larger private equity investors.
Companies with yearly earnings before interest, taxes and amortization of $5 million or lower tend to be too small for private equity firms, Clarey said.
“Once it goes over $5 million we start competing with people we don’t want to,” he said.
Last year, it bought Irvine-based RF Comsites LLC, a company that boosts cell phone reception in large buildings.
Hospitals and hotels are some of RF Comsites’ biggest customers. It works with companies such as Verizon Communications Inc. and Sprint Nextel Corp.
“It’s been growing like crazy,” Clarey said. “The industry didn’t exist four or five years ago.”
Santa Ana-based Powerwave Technologies Inc., a maker of equipment to boost signals on wireless networks, is a competitor.
RF Comsites may make an acquisition this year, Clarey said.
Last year, Clarey broke from tech investing when he bought Redlands-based ambulance company Health-Link Transportation Corp. for an undisclosed price. The non-emergency medical transportation company is considered recession-proof, according to Clarey.
Computer Management Buys
In 2006, Clarey bought into a handful of computer businesses including Phoenix Computer Associates Inc., a Fairfield, Conn.-based company that helps businesses manage their computers.
The computer management sector could be ripe for consolidation, he said.
Clarey also owns Irvine-based LightRun Systems LLC, which makes and sells antenna systems for wireless service providers.
For deals, Clarey borrows from banks and has had concerns over what to expect amid the credit crunch.
For every million he puts in, he usually borrows $3 million. Ten million dollars is the most he’ll invest of his own money.
After recently trying to combine a couple of his companies, Clarey found at the last minute that the bank wanted him to put more money down, which killed the deal.
The hardest part of Clarey’s job, he said, is finding quality managers to run companies.
“A-rated talent tends to either start their own company or work for a higher paying one,” Clarey said.
Doing business in California also has its challenges: “A lot of companies are still here but it doesn’t make economic sense,” he said.
Originally from Arizona, Clarey keeps companies here simply because it’s his home and he likes it, he said.
He helped raise money for presidential candidate Mitt Romney as his California co-finance chairman. He now backs John McCain.
