In September, CAI Capital Partners announced two new investments for its sixth and latest fund. At first blush, the companies – RebalanceMD Canada Ltd. and CMT Engineering Laboratories – couldn’t be more different from each other. The former operates an orthopedic surgical and non-surgical clinic in Victoria. The latter is a leading Utah-based provider of civil and geotechnical engineering services including land surveying, construction material testing and inspection. However, both businesses share a compelling growth profile supported by a robust demand pipeline with a strong customer base – all attributes CAI looks for in its portfolio companies.
We spoke with CAI partners Tracey McVicar and Curtis Johansson to learn more about the two deals and how they align with CAI’s overall strategy of partnering with and growing founder-owned businesses in the Canadian and, in certain circumstances, the U.S., lower middle market.
Tracey, let’s start with RebalanceMD – what attracted you to this business?
TM: Simply put, it’s a compelling growth opportunity. Traditionally, we have been drawn to stable, diversified revenue streams and business models poised for steady, gradual expansion. However, RebalanceMD has an innovative operating model that is designed to be implemented in multiple locations. It’s essentially a one-stop, regional shop for musculoskeletal health – everything from consultation, prep and surgery, to recovery and physiotherapy aftercare, complete with a proprietary way of triaging patients’ needs that sees many patients offered non-surgical alternatives to invasive surgery.
At the same time, the customer – which is the provincial health authority ultimately paying for Canadians’ health care – ends up enjoying significantly reduced wait times for high-demand orthopedic surgeries. Each health authority’s capital-intensive hospital operating theatre infrastructure can be far more efficiently used under the RebalanceMD model that took years to develop and perfect. It’s a win for everyone.
How do you plan to work with RebalanceMD to expand the company?
TM: Stefan Fletcher, the CEO of RebalanceMD, is incredibly passionate about helping patients and we share his goal of taking his vision into new markets. And when you consider that 60% of all surgeries in Canada are orthopedic in nature, we think this model has tremendous potential to be successful elsewhere in Canada. Our investment will help the RebalanceMD team with capital for opening new clinics, first in B.C. and Alberta and, over the long term, throughout the country.
And where do you think RebalanceMD will be five years from now?
TM: RebalanceMD has a great trajectory. It operates in a stable, regulated industry and enjoys growing demand, underpinned by favourable demographic trends driven by an ageing population. It’s also a model that’s attractive to surgeons, who get to focus on doing more of the work they love without the burden of administering their own practice. We believe five years from now, this business will represent the gold standard for orthopedic patients, health authorities and surgical teams.
Curtis, let’s talk about CMT. This is an industry where CAI has invested in the past.
CJ: Exactly – we have a long track record of experience in the industrial and infrastructure services world, and CMT is a great business in this space. Demand for geotechnical evaluation, as well as the testing of construction materials, continues to intensify.
That’s partly due to more specialized and bespoke construction products coming to market. After all, cement simply used to be cement. Now, both developers and contractors want to know that the customized mixture they’ve ordered is actually what they’ve received from their supplier, so they can move a project forward with safety and confidence. CMT helps them ensure exactly that.
What does CMT’s growth profile look like over the long term? How will CAI help the company achieve those ambitions?
CJ: This is a resilient business that grew through the last recession, has grown despite COVID-19 and stands to benefit strongly from any infrastructure spending that the U.S. government undertakes in the next several years.
The U.S. housing supply is also extremely depleted right now and the residential real estate market has stayed strong. As a result, we believe it’s possible that a significant upcycle in home building is about to kick off. All those new house foundations, roads and other related sites and projects will require testing services. Developers are also increasingly building projects on more challenging sites that require additional geotechnical inspections before they can break ground, which is another positive underlying fundamental of this business.
The CMT team is eager to grow, but they have been capital-constrained, which is exactly why we’ve partnered with them. We believe there’s great organic growth potential in this business, in addition to acquisition opportunities, given the fractured nature of the industry.