Tomball, Texas-based Environmental Design, Inc. (EDI) is the world’s premier giant-tree transplantation company. It moves large trees for corporations, museums, memorials, universities, golf courses, casinos and wealthy individuals. The industry’s technological leader, EDI has a superior record for quality (i.e. tree survival), large brand-name customers and a thirty-five year record of success. As a result, it has the industry’s best margins and has grown substantially faster than the rest of the industry.
THE SITUATION
In 2003-4, EDI’s CEO Tom Cox faced two challenges. First, he wanted to professionalize EDI and take it to a higher level of profi tability and growth. Second, EDI constituted the bulk of his net worth, so he was understandably reluctant to make some of the investments that he intellectually believed that he should make. For example, Tom was cautious about incremental overhead, so EDI had never had a sales force or a signicant marketing effort. As a result, EDI’s historic and prospective growth depended solely on word-of-mouth referrals.
INVESTMENT
While at a predecessor fund that he had co-founded, Dos Rios Partner Bo Baskin led and was principally responsible for that fund’s investment in an EDI convertible preferred stock. The investment resulted in Bo’s predecessor fund owning 55% of EDI and Tom owning the other 45%.
POST-INVESTMENT
Bo (and, later, his Dos Rios Partners colleague Kevin Benoit) worked closely with Tom and the rest of the EDI management team to implement an aggressive but intelligent growth plan. First, they aligned the interests of key EDI team members by sharing the company’s equity in the form of both stock and options. Second, they strengthened the team by adding a Chief Operating Officer, a Chief Financial Officer and a Director of Marketing and Sales. Third, they implemented an ambitious sales and marketing plan. Fourth, when the economy later collapsed in 2008-9, they used EDI’s strong balance sheet to “pivot” and buy the industry’s #2 player, materially increasing EDI’s scale and already-strong competitive position.
RESULTS
From 2004 to 2008, EDI more than tripled its sales and EBITDA. The profi tability enabled EDI to return ~100% of the fund’s investment through unlevered dividends. Tom bought out the predecessor fund in 2011. Today, he and the EDI management team own a business that is materially more professional, well-positioned and profi table than it was eight years earlier.