Platinum Investment in Tak Fueled by Expected Rise of Fiber

Platinum Investment in Tak Fueled by Expected Rise of Fiber

The fiber-to-the-home market is expected to grow with the rise in streaming TV and other factors contributing to that growth.

Earlier this year, while explaining Platinum Equity's investment in broadband provider TAK Communications, Managing Director Dan Krasner is quick to note that Amazon Prime Video's airing of an NFL playoff game earlier this year - with 23 million viewers - was the most-streamed live event in U.S. history. Also, the NBA is nearing a deal with Amazon that would make the streaming behemoth a broadcast partner.

With providers expected to make more content only available via streaming, viewers are expected to continue following. For an optimal viewing experience, fiber is considered the best option.

Krasner has an anecdote that lands even closer to home to explain fiber preference. He recalled his former house, which had access to fiber.

"I think fiber has proven to be the best way to get the internet at home," Krasner said. "If you have access to fiber at your house, which I don't right now, you have to use a cable modem and it stinks.

"My old house had access to AT&T fiber, and I think it was just faster."

Platinum Equity announced a "significant investment" in TAK Communications, a national provider of communications and broadband infrastructure services, in March. Headquartered in Sioux Falls, S.D., TAK provides fiber and broadband network services, last-mile connectivity and other solutions for the broadband and telecommunications industries.

"TAK has built an impressive business with national scale that today provides full end-to-end capabilities across the network deployment value chain," Platinum Equity Co-President Jacob Kotzubei said in the release announcing the investment. "Fiber is the backbone of key technologies used to deliver broadband internet and wireless connectivity and we believe that demand for bandwidth will only continue to grow."

The investment is another example of the firm investing in a founder- or family-owned company as Executive Chairman Micah Mauney established the company in 2004. Mad Engine, L&R Distributors and Arrow International are companies under the Platinum Equity umbrella with similar origin stories.

Mauney said: "I am proud of everything we have built over the last 20 years and am confident Platinum will be an outstanding partner for our next phase of growth. Platinum's operations expertise is well suited to help us take the next step in delivering the very best customer experience, growing our amazing team members, and strengthening our goal in building America's best communication services provider for our current and future customers."

Platinum Equity's Small Cap team led the TAK investment. The company's owners and management retained a significant ownership stake in TAK and continue to lead the company.

Kotzubei and Krasner provided other details about the investment.

(Questions and answers have been edited for length and clarity).

Q: Why did Platinum do this deal?

Kotzubei: Over the last decade the rest of the world has transitioned to a fiber-based infrastructure, but the U.S. is meaningfully behind in its deployment and isn't expected to reach significant penetration for at least a decade - likely more. Fiber typically outperforms broadband solutions today and have more upside potential. The major telecoms - including AT&T - have all publicly reiterated their commitment to fiber. The business also shows a proven model for M&A growth.

Krasner: The founder sees a tremendous amount of growth potential in his business, but he knows he needs a financial partner to realize it. He was willing to roll a substantial part of his equity value in the transaction, and I think he really wanted to align with us because of the financial and people horsepower that he believes we can bring to his business.

Q: Who are TAK's customers?

Krasner: It's really the telecoms and the cable companies. Comcast and Charter are TAK's two largest customers, but they will also do work for most of the mid-sized telecom and cable companies, anyone who's supplying internet services to households around the U.S.

Q: Founder-owned companies are a consistent source of business for Platinum Equity. Why?

Kotzubei: Some of it goes back to (Platinum Equity Founder and CEO) Tom Gores. We relate to them because of how Tom founded Platinum. In the beginning, it was truly a family business, and that ethos remained as the firm has grown. It's about what we stand for as an organization and why we're a good partner for these family-owned businesses.

Specifically, we have always valued the things that we think founders value in their businesses, which is an ability to be nimble, not bureaucratic. It's an ability to make quick decisions, an ability to really focus on the human side of what makes these businesses valuable, helping people feel appreciated. This translates well to founders who care about those kinds of characteristics in a business partner.

Krasner: What we're finding to be attractive investment opportunities are family-owned companies that really are not well-managed. From that perspective, they are very much like carveouts from the Fortune 1000. There's a lot of parallels in founder-owned businesses and carve-outs. They're not well-managed, maybe for different reasons, but the results are the same. Then there is the second bucket of family-owned businesses, like TAK, that have real growth prospects, but don't have the capital or the human capital to realize those goals.

Q: How did Platinum become the preferred buyer?

Krasner: Like with similar transactions in the past, I think we won in part because the founder developed a relationship with us. He sees the horsepower that Platinum could bring to his business. He had opportunities to sell it to more strategic buyers, but he'd be selling a hundred percent in that case. He doesn't want to sell a hundred percent, so he was willing to take less money now so long as he could have a substantial part of the equity going forward. He believes that's ultimately going to be worth more in a few years than if he just sold out. I hope he's right.

Q: Will this investment generate M&A activity?

Krasner: There are several regional large players, and TAK is one. There are still small service providers out there that just cannot grow out of their geographic region. The way TAK has grown historically is through small add-ons, and we certainly expect to continue to expand TAK's geographic presence.

Q: Why is Platinum Equity a good operational fit for these deals?

Kotzubei: These businesses get the benefit of being affiliated with a firm that has 50-plus companies in many sectors around the world. We understand trends, we try to see around corners, which can bring visibility into what's happening around the globe, what's happening on these issues of supply chain, issues with inflation. They get that benefit that can help them protect their business or take advantage of opportunities to grow it. The business may be small, but they're getting the benefit of being part of a really large organization with really large businesses that see everything that's happening. We like to keep our finger on the pulse of the economy and the supply chain and the capital markets and all these things that as a family business, you probably can't pay a lot of attention to.

Q: You mentioned other family-owned, Small Cap deals. Any other similarities with previous deals?

Krasner: This is not a Unical or a Tarter Farm & Ranch Equipment, which needed real operational turnarounds. This is more managing growth and maximizing profitability through that growth. I think that's really what the ops team is going to focus on over the coming year. This is not really a true operationally intensive investment - at least that's not the intent going in.

Q: What are the downsides here?

Krasner: The growth appears to be on the infrastructure side, the construction side of lane fiber. This would be when a community is growing or a housing development is under construction, or you're going to build fiber infrastructure so that a whole neighborhood can access fiber to get internet services. This business is new for TAK.

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