By Chad Halcom
Article Courtesy Of Crain’s Detroit Business

Other than the fact that most of its resident companies aren’t startups, the headquarters of Auburn Hills-based Quantum Ventures of Michigan L.L.C. almost resembles a business incubator.

The corporate development and investment firm houses 11 of its 25 companies in less than 60,000 square feet of office space on Doris Road — some of the companies separated by just partition walls or aisles between groups of cubicles.

More occupants are on the way as the company, founded in 2002 as Quantum Value Management by former Noble International Ltd. Chairman Bob Skandalaris, closed in late February on the purchase of Rochester Hills-based Coating Specialists L.L.C.

A second acquisition awaits regulatory approval any day from the federal General Services Administration, Skandalaris said.

Coating Specialists and the second local company could be moving into Quantum’s building even as the staff of CDI Technology L.L.C. prepares to move out. Quantum just sold CDI, which supplies point of sale and paging technology to the restaurant and hospitality industry, to Troy-based credit card processing company North American Bancard Inc. a few weeks ago. The company would not disclose the sale price.

“We like to find companies that have good management and a good business plan, and maybe are lacking in marketing or in the capitalization to carry some of that out,” Skandalaris said.

“And what our acquisition often becomes about is bringing the company aboard and
executing its (own) business plan.”

Combined 2009 revenue from the Auburn Hills portfolio of companies was about $50 million, which was nearly the same as the year before, said Garrett Morelock, president of the 3Sixty Distribution Group platform of Quantum.

But those same companies could make a combined $75 million for Quantum this year, he said, adding in the newest acquisitions and figuring a very slow national economic recovery during the year.

Quantum bought its current headquarters building last spring. It’s the former engineering center for Southgate-based ASC Inc. before that company went bankrupt in 2007. Quantum consolidated several of its companies when it relocated there from Bloomfield Hills last fall.

Revenue for 2009 among non-headquarters companies in Quantum’s portfolio could be more than $90 million, although one of the largest — Bridgeview, Ill.-based lift equipment maker Manitex International Ltd. (Nasdaq: MNTX) — will not release year-end earnings until later this week.

Quantum also owns Ann Arbor microprocessor company Xembedded L.L.C. and El Monte, Calif.-based graphic products maker Miller Dial L.L.C. It co-owns the joint venture Cardinal Insurance Agency with Southfield-based Meadowbrook Insurance Group, and holds a minority share of New York-based global online gift registry service MyRegistry.com as well as maintaining a small share of Manitex.

“Generally, we’re looking for companies within the $2 million to $20 million range in
revenue, though we do look bigger or smaller, and our sellers have often been in business themselves for 20-30 years,” Morelock said. “We like them to have been around long enough to go through at least a complete economic cycle and show they can weather a downturn.”

There are exceptions.

Quantum bought Birmingham-based business search engine marketing firm LocalBizNow about two years ago, Skandalaris said, after it had operated for a year or so as a startup. In late 2009, Quantum acquired Birmingham-based SportStat L.L.C., which now operates as sports-themed mobile device application U-Score. Both are now in Auburn Hills.

Skandalaris said just three or four of Quantum’s 25 portfolio companies would fit any
definition of a startup, and Quantum is mainly in the market for second-stage or middlemarket companies that it can grow and then sell or take public.

“This helps bring all the companies under one roof that need some level of our help, and we can do in-house marketing for them as well as share some overhead and other costs,” Morelock said.

“The hope is to get a little more incubation here, and then to eventually ship them off and stand them up elsewhere.”

Skandalaris, chairman of the company, said Quantum was a part-time pursuit for its first few years after inception but grew into his primary business as his responsibilities diminished at Noble.

Quantum started with a small group of manufacturing and distribution companies, including Monroe Pro MotorCar Products at Auburn Hills and what is now Manitex, then branched out by acquisition into other industries, he said.

The company carries no bank debt and funds all acquisitions “internally,” he said, but did not elaborate.

Skandalaris resigned as Noble chairman in early 2008 after taking an offer for 2.4 million shares of the auto supplier’s stock to European steelmaker ArcelorMittal S.A. for more than $33 million. Noble was liquidated by bankruptcy court order last December.

About a month ago, Morelock said, Quantum also reorganized to collect its growing portfolio under various “platforms” for its industry groups.

A platform is generally a company that an investment or equity firm creates or acquires and then uses to own and operate its holdings in a specific industry.
Quantum’s platforms will be its 3Sixty Distribution Group in Auburn Hills, as well as legal entities for its media companies, interactive technology, financial services, emerging companies and manufacturing businesses. A specialty chemicals platform will also hold Coating Specialists and the acquisition that still awaits GSA approval.

Skandalaris said Quantum’s parent company management now consists only of himself, CFO Scott Kania and Michael Azar, vice president and general counsel.

The rest of the employees in Auburn Hills, more than 100, now belong to one of the
platforms or portfolio companies.

Brian Demkowicz, managing partner at Detroit-based private equity firm Huron Capital Partners, said Huron also has used several platforms for its portfolio since inception. Healso said he knows the management at Quantum, and if the company is adopting a similar model it could be a sign of an aggressive growth strategy.

“Generally, the platform model suggests a company’s desire to have people more involvedin specific operational processes,” Demkowicz said.

“Adopting the model shows that the equity, or management firm that creates a platform, is interested in building up further within that specific industry.”

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