For Chief Executive Cyrus Nikou, the most important return on an investment is not necessarily financial but rather what that investment is doing for the world.
That was the basis behind his founding of Atar Capital, a Century City-based private equity firm that operates behind a set of principles which drives its investments toward companies with societal or environmental impact. Despite conventional wisdom, Nikou – who founded Atar in 2016 – finds that abiding by these investment principles while also sourcing financially sound deals is doable.
After guiding its affiliate Solero Technologies through the acquisition of the automotive business previously owned by Kendrion, a Netherlands-based manufacturing company, Atar’s annual revenue now sits at $1.8 billion.
“I find that doing the right thing and investing in sustainability is protecting our future, and the profits will follow,” Nikou said.
The Solero deal, which closed last week, had an enterprise value of $67.1 million and brought in $231 million in revenue.
Solero, an auto transmission and engine supplier based in Michigan, previously primarily serviced gas-powered vehicles. The company pivoted toward electrification under Atar’s ownership. With this evolution, the company developed a battery cooling mechanism to allow for longer battery range for electric vehicles and manufactured auto parts for suspension that work for both gas-powered and electric vehicles.
Now with Kendrion’s auto business under its belt, Solero is poised to add more green products to its portfolio and expand its global footprint, Nikou said, noting that the majority of Kendrion’s auto revenue comes from the electric vehicle portion of the business.
“By consolidating the two, we have more products for electric, more suspension products, and we have the ability to produce parts for our customers across the pond as we are bringing on a whole host of new customers,” Nikou said, calling these customers “major European original equipment manufacturers.”
Streamlining corporate carve outs
Atar targets companies with $200-500 million in revenue, with carve-outs accounting for about 80% of its transactions.
Without any institutional investors to answer to, Nikou said Atar is free to act quickly on deals, noting that PE firms with institutional capital typically must receive multiple approvals from an investment committee.
“At Atar there is no investment committee. I’m the investment committee and I move extremely quickly, and I think that’s definitely a differentiator,” Nikou said.
When acquiring a division or business that has been carved out, Nikou said Atar is known for quickly achieving independence from transition service agreements from parent companies. These agreements in which a parent company continues to equip the newly standalone business with IT, treasury, HR and legal services can often last about a year – though Nikou said Atar frequently exits these agreements in only three to four months.
“We make it extremely easy, and that’s why we can be favored in a sale process, because of our track record and our experience in carve outs and coming off those TSAs quickly and being able to stand up the business on its own in an extremely short period of time,” Nikou said.
While Atar is swift in capturing an opportunity, Nikou positions the firm as a long-term investor working closely with companies in its portfolio on improving revenue and accelerating impact.
Recently, Atar sold Microcel, a Canada-based global technology and brands distributor, after a nearly six-year relationship.
Under Atar’s ownership, Microcel significantly diversified its revenue mix. Prior to its acquisition, more than half of Microcel’s revenue came from distributing Fitbit, whereas Atar brought that number down to 20%. Additionally, Nikou said the firm hired a new C-suite, nearly doubled overall revenue, enhanced efficiency and increased profitability.
Inside Atar’s portfolio
With the overarching goal of investing with impact, the companies in Atar’s portfolio reach across industries including health care.
Nikou said he views the 2018 purchase of Virginia mental health services company Clarvida – formerly known as Pathways Health and Community Support – as “the deal that really changed the landscape for Atar Capital and really put us on the map.”
At the time of the acquisition, Pathways was generating $300 million in revenue, but it was burning through a lot of cash and lacked a strong management team, Nikou said.
“When I looked at this deal, I said, ‘Wow, not only is this business in turmoil, but through that turmoil, its revenue was consistent every single year. So now imagine if you put in a proper management team, consolidate the business and become a unified organization,’” Nikou said.
Along with its recent rebranding as Clarvida this summer, the company outlined a growth plan to triple its impact by 2030.
Being a part of improving an organization that caters to all aspects of mental health be it intellectual or physical disabilities, family services, mental illness and beyond gives Nikou a sense of pride, he said.
In terms of environmental impact, Atar has overseen the transformation of WinCup, a food service products manufacturer based in Atlanta. When Atar first purchased WinCup, Nikou said it was primarily producing traditional Styrofoam products, which are large contributors to landfill overflow as they take hundreds of years to decompose.
Now WinCup’s foam products biodegrade 92% after four years of sitting in a landfill. Additionally, its cutlery products biodegrade on their own in a bacteria-filled environment. For example, if someone tossed one of the forks in the ocean it would dissolve in a few months without releasing any fossil fuels.
WinCup’s straw, which was also developed under Atar’s ownership and is sold to some of the largest household name quick-serve restaurants, completely biodegrades in 58 days.
“This is probably the most sustainable product that the planet has seen,” Nikou said as he held up a WinCup straw. “It’s the first fully marine biodegradable straw in the world.”
Striking the balance
In terms of balancing profitability and maintaining a standard of socially and environmentally responsible investments, Nikou acknowledged the firm has walked away from deals that could have resulted in a quick buck but that didn’t align with the company’s principles.
“There’s plenty of deals that we look at where there’s really no societal impact. (The business is) not really contributing anything positive to the planet, and it’s really just either a cost center deal or you’re just looking to quickly profit on a deal and move on. That’s not the Atar view,” Nikou said.
That said, Robert Bikel, the director of the Socially‚ Environmentally‚ and Ethically Responsible Program at Pepperdine Graziadio Business School, discussed the relationship between profits and impact investing.
“There’s a typical mindset that leads one to think of profitability versus social good as being antithetical to one another, or at least in opposition to one another. And while it is true that there are firms that prioritize social impact, and there are some firms that to their own detriment have over-prioritized social impact, it is a balance that can be struck,” Bikel said.
Considering Atar’s principles and target investments, Bikel described Atar’s $1.8 billion in annual revenue to be a “very respectable return.”
“Any investment is only as good as the fundamentals of the company that you’re investing in, and so it really comes down to avoiding the trade off,” Bikel said.
A company can accomplish this if it has a diverse set of values including product quality, financial return and social and environmental impact, according to Bikel.
“It’s about understanding that it’s not about maximizing any one of those, but optimizing all of those over the long term – understanding that at certain points in the near term, you make certain tradeoffs but over the long term, you keep all of those as high level objectives,” Bikel said.
Nikou said he is confident that Atar will continue to grow.
“We have a lot of exciting things going on and I think over the next three to five years, Atar is going to look much different than today,” Nikou said.
