Supercircuits gets another $10m from Carlyle

Money will retire debt, fuel product development
Thursday, October 22, 2009

AUSTIN, Texas—In an effort to eliminate debt and fuel technology and product development, the Carlyle Group has invested another $10 million in distributor/manufacturer Supercircuits. Carlyle bought controlling interest in the company in 2006 and it is part of its U.S. Growth Fund III.

Brian Wood, chairman and CEO of Supercircuits, said Carlyle’s involvement with the company has been beneficial on more than just a financial level. “Sophisticated end users might say, ‘I’m not going to entrust a six-figure system purchase to a non-brick-and-mortar establishment,’ but then they understand who our financial backer is, and they see the people who agreed to join our board, and they get comfortable very quickly.”

Aren’t they troubled, though, by the fact that Carlyle will likely want to exit the business at some point, and see a return on its investment?

“The point of a fund is to generate a return,” Wood acknowledged, “and Carlyle is no different, but they’ll sell no asset before its time, and their focus—without speaking for them—is about running businesses, and the value that’s built by making the business they own better. And that’s how they’re going to get the returns they’re looking for: expanding the footprint, deleveraging, adding scale. Someone might look at that and think they’ll sell us off, but the sale of the asset doesn’t mean the company ends and return can be generated in a number of ways, not necessarily just a liquidity event for Carlyle.”

Supercircuits is part of the Internet breed of security distributors in that it sells to virtually anyone, end user or installer, and that does virtually all of its commerce via the Web site, but Supercircuits is significantly unique in other ways, said Wood.

For example, some of the $10 million will be invested in product development to continue to build out the company’s manufacturing capabilities. “The vast majority of the products we sell now carry the Supercircuits brand,” Wood noted, and the ratio of technical people to sales people at Supercircuits is one to one. Not only do they manufacturer the Black line of products, which are for dealer resale only, but they also do a lot of custom work, Wood said.

“If you come and say, ‘I need XYZ,’ and we don’t have it in stock, we don’t send you away,” he said. “We see what you need and see if we can build it for you. That’s not something that a lot of people offer in the market.”

How does Supercircuits manage selling both through the channel and directly to end users?

“We’re happy to work with pretty much anybody, with the exception of another distributor that’s not adding value and just pushing the product along,” Wood said. “And while we’re a great source directly, sometimes end users want the ability to touch a product, or there’s the need to integrate it into a broader system, and that lends itself to a dealer.”

Further, he said, “there’s 10 other dealers who are in their market competing with them. Competition isn’t new to them. They’re concerned that we’ll subvert their presence in the market, but we have no intention of replacing their capabilities. What we’re in fact doing is referring leads to them, we see if they can help our customers ... It’s important that we work with them, and a substantial portion of our business from very early days has been channel-based.”