In a world that likes to see businesses grow by leaps and bounds, LDI Ltd. is a tortoise.
The family-owned holding company typically hangs onto firms in its portfolio for 15 years or more. It might take more than two years to zero in on an acquisition target. And it’s putting its next CEO, J.A. Lacy, through a year-long apprenticeship.
“I don’t think we’ve sought to hit home runs. I don’t think we have hit home runs,” Chairman Andre Lacy said.
The slow and steady approach certainly netted results—a 15-percent compound annual growth rate over the 46 years, 1961 to 2007, in which Andre Lacy served as CEO. (LDI measures its growth in terms of shareholder value, which the company determines through private sales of its stock.)
“I’ve seen people who’ve grown a lot faster, maybe less successfully,” said investment banker Bob Shortle, senior managing director at Periculum Capital in Carmel. “I wouldn’t say it’s spectacular, but very solid. Very solid.”
LDI, which formerly stood for Lacy Diversified Industries, buys regional distribution businesses and helps them grow to a national scope.
Gradually, LDI is preparing to hand off leadership to Andre’s son J.A. The younger Lacy, 46, was named chief operating officer in November, and by the end of this year he’ll oversee one of Indianapolis’ 10 largest privately held firms, with 2010 revenue of $906 million.
J.A. was CEO of an LDI portfolio company, FinishMaster, until its sale in January 2011, but at LDI he’s working closely with the current chief executive, David Shane.
“My role is to help J.A. succeed,” said Shane, who at 63 is anticipating his own retirement.
Despite the deliberate nature of the hand-off, J.A. Lacy said he doesn’t expect to plot out every step of LDI’s “next big run.”
“There’s also an element of capitalizing on opportunity,” he said. “The companies we own are at strategic inflection points.”
Holding on long term
LDI’s portfolio currently includes just two firms: Fort Worth, Texas-based Tucker Rocky, which is the country’s second-largest parts distributor for motorcycles and ATVs; and OIA Global Logistics, a Portland, Ore., firm acquired in August 2010. (The two companies have about 1,000 employees combined.)
LDI sold Indianapolis-based FinishMaster, the largest distributor of auto paint to body shops, in January to Uni-Select, a parts distributor based in Toronto, for $172 million.
Though Tucker Rocky faces some fundamental changes in the power sports industry, it’s not for sale, Shane said.
“It’s had its ups and downs,” J.A. Lacy said of the company, which LDI acquired in 1989. “We’ve always concluded it’s worth holding onto.” (Tucker Rocky also introduced the Lacys to motorcycles. Andre, 72, rode a chopper to the Arctic Circle last spring, and J.A. owns a pair of skull-and-crossbones cuff links.)
The number of motorcycle dealers is shrinking, and today’s riders are more comfortable buying parts online, J.A. Lacy said. Fortunately, Tucker Rocky has developed its own brands over the years, so it might become less distribution-driven, he said.
OIA Global boasts Fortune 500 customers, but its success before LDI’s ownership depended on the personality of its founder, Lacy said. The LDI team is helping OIA make the transition from startup to lasting institution, he said.
LDI is looking to add a third company to its portfolio. LDI never has been in the turnaround business, but given the economy of the last four years, that might change, Lacy said.
Because there is so much competition from private-equity firms for profitable acquisition targets, he would consider taking on a company that’s been through rough times.
“The world changes,” he said. “We’re just evolving right along with it.”
The Lacy family made its money in the cardboard-box industry.
Andre Lacy’s grandfather co-founded U.S. Corrugated-Fibre Box Co. in 1912, and it became one of the largest box makers in the country.
But by the 1950s, cardboard boxes were a commodity, and profitability for a company like U.S. Corrugated depended on the price of materials from forest-product suppliers and relationships with customers.
The family sold U.S. Corrugated for an undisclosed sum in 1984 and created a holding company. But LDI is much more hands-on than the term “holding company” suggests, J.A. Lacy said.
“These were managers. They were used to having their sleeves rolled up,” he said. “That philosophy continues to permeate the way the company operates.”
Today, a team of 17 finance and operations experts works out of the Monument Circle headquarters.
When Andre Lacy was deciding how to focus Lacy Diversified Industries after selling the box business, he concluded its expertise was in distribution.
That’s a tough business in which to stay profitable, said Shortle, who has worked on deals in the industry. There’s always someone willing to do the work cheaper, he said, so margins shrink over time.
“There’s a tremendous tendency to consolidate,” he said. “Big companies are just getting bigger.”
That also means there are plenty of smaller players looking to sell, creating acquisition opportunities for LDI and its portfolio companies.
Private-equity firms are chasing deals as well, and because they use outside investors’ money, they might be willing to pay more for a company. But such firms also have a limited amount of time, five to 10 years, to boost profitability and sell again. A family-owned holding company can take as long as it likes, Shortle said.
“So for a lot of sellers, that is very attractive because they hate to see their company bought and sold all the time,” he said.
LDI is like any number of family holding companies found in Midwestern cities that were created from the assets of a former industrial giant, Shortle said.
Yet the Lacys take great pains to ensure that LDI’s success doesn’t hinge on any one person.
Andre Lacy’s father, Howard, died of a heart attack in 1959, just seven years after taking over U.S. Corrugated. Andre was in college, so his mother, Edna, stepped in.
She appointed the late banker Frank McKinney Sr. as an outside director. Andre Lacy credits McKinney with establishing a culture in which LDI’s management heeded the board.
LDI’s board still includes two non-Lacy members, former WellPoint Inc. executive Mike Smith and HHGregg Chairman Jerry Throgmartin.
LDI also ties manager pay to performance.
“We have sought to operate at the highest standard of the most premier public company – damn privately,” Andre Lacy said.•