Heartland, ESI join hands

Arkansas Business, Dec 30, 1996 by Jim Harris

It seems Little Rock-based ESI Group of Cos. and the Dallas-based Heartland Capital Appreciation Fund LP were made for each other.

Rod Ford, ESI's chief executive officer, needed substantial capital for his firm to realize a significant business plan of growth and acquisition, but obtaining that sizable amount through traditional banking avenues was difficult. The Heartland Fund, a $52 million equity partnership created by Llama Co.'s Alice Walton and Texas banking executive Bernie Carrico, was established to help businesses in the American heartland that needed this type of financing.

Also, Ford's growth plan was regionalized in an area that coincided with Heartland's focus.

Doyle Williams, dean of the University of Arkansas at Fayetteville's College of Business Administration, knew of Ford's ideas and was aware of what Carrico had helped start. He put the two in touch earlier this year, and the relationship culminated in a "marriage" between ESI and Heartland last month.

Heartland will invest $2.5 million in ESI, becoming a minority partner and helping ESI with needed capital for acquisition and growth.

The first major acquisition will close Dec. 30 when ESI purchases. The Bradshaw-Clark Corp., a Little Rock speciality electric contractor. The deal, Ford says, brings a wiring/circuitry company into the ESI fold, making it a sole-source technology service company with no local peer.

ESI, which began eight years ago helping large industries improve efficiency by finding better ways to apply technology, has in the past two years begun to add work in the commercial sector (personal computers, databases and Internet connections). Its new division will retain the Bradshaw-Clark name and give ESI a third avenue in direct connectivity.

"We've become essentially overnight a $15 million high-tech contractor," says Ford, adding that the applicable industry term for "high-tech contractor" now is "systems integrator."

ESI, which Ford says is growing at 50 percent a year and will realize about $5 million revenue this year, plans to add 5,000 SF to its 10,000-SF office in the Riverdale area of Little Rock in the coming months. The addition is in the architectural phase, and Ford hopes to break ground by Feb. 1.

ESI has a 14-month-old office in Tulsa, Okla., and is opening an office in New Orleans. Ford envisions acquisitions that would give ESI a presence in Nashville, Tenn., Birmingham, Ala., Dallas and Houston.

ESI and Heartland see the company blossoming to a point within the next three years where it can go public.

"The plan is to significantly grow the business," the 35-year-old Ford says. "We have some very aggressive growth schedules over the course of the next three years. Everything we're doing right now in terms of corporate organization, financial structuring and operational structuring is preparing for the next level, which in our mind is an IPO."

Carrico, Heartland's president and CEO, says his firm believes "there is a significant opportunity to position [ESI] as a public company, not necessarily to raise a lot more capital, because we could put more capital to work. But we think this would be a very interesting vehicle to be public, where Rod could go to some local markets and basically acquire a company that fits into the overall game plan of products that ESI offers. . . . That makes an enormous amount of sense."

Ford says that before moving ahead with an IPO, "we want to develop more resources, develop a larger portfolio, specifically a larger regional presence - at least five of those regional offices functioning, profitable, on-line, which I think gives you a much more leveraged organization to take to the public market. And a track record of significant growth and success."

With this partnership, ESI will form a five-man board of directors. Ford and Carrico will be two members of the board; talks have been held with some prominent Arkansas business leaders, but nothing has been confirmed, the two say.

Removing the Barriers

Ford says that removing financial barriers was the key issue in growing his company. He saw growth as most important because "we really felt like the first guy to get to some form of critical mass in this market regionally would be the big winner long-term."

Enter Heartland.

"We have been looking at the systems integration industry for probably a year and a half," Carrico says. "We think it is an enormous opportunity given where the information age is going, and we wanted to make an investment in someone we thought had a different business strategy. Rod clearly has something unique and something we were very attracted to."

Ford says ESI will benefit from Heartland's other relationships and investors.

"We feel like there is going to be a lot of value there for us on the revenue side as well as use of the capital," he says. "Bernie's experience and his partners' experience and the resources they bring to the table are extremely impressive."

Bradshaw-Clark was founded by Ronnie Clark 22 years ago. Clark will stay on as president of the 70-employee firm. ESI's total number of employees after the acquisition will jump to 110.