A $20.2-million venture capital injection is aimed at helping the company grow its human resources business.
By JEFF HARRINGTON
Published March 2, 2004
TAMPA - Their names are synonymous with what was once the largest private insurance broker in Florida.
Now, four years after selling DavisBaldwin Insurance to Wachovia Corp., Chuck Davis and Lowry Baldwin are making a splash in the field of human resources.
The duo's Tampa company, AdvanTech Solutions, plans to announce today it is receiving a $20.2-million equity boost from venture capital firm Trident Capital. The deal closed Monday.
According to the MoneyTree Survey of venture capital deals, Trident's commitment would be surpassed in recent Florida history only by a $32-million venture capital deal last year involving Tampa's Switch and Data.
"It's one of the largest (Florida) deals we've had reported to MoneyTree in the last couple years," said Marty Donsky, marketing manager for PricewaterhouseCoopers, which is a sponsor of the venture capital survey.
Created in 1998, AdvanTech acts under a "co-employment" agreement with hundreds of small to mid-sized companies. Officially, AdvanTech becomes the co-employer of its clients' workers for matters such as tax filings. Practically speaking, it becomes the human resources department for those companies, using its clout to secure cheaper insurance rates while overseeing functions such as payroll, workers comp benefits, taxes and 401(k) plans.
AdvanTech uses a network of independent agents in five states to find customers. Its target market is companies with 10 to 2,500 employees.
Davis has been chairman of AdvanTech since its launch. Three months ago, he recruited Baldwin as vice chairman from their former DavisBaldwin operation, which was renamed Wachovia Insurance Services after its acquisition. Rounding out AdvanTech's management team is chief executive Jack Murray.
AdvanTech has grown briskly. It now handles administrative services for about 600 clients representing 20,000 employees. AdvanTech has about 135 employees.
Executives with the private company said profits swelled even during the economic downturn. Between 2001, its first profitable year, and 2003, revenues rose 66 percent to $23-million and pre-tax earnings jumped 340 percent to $3.9-million, they said.
But AdvanTech has had problems persuading some mid-sized companies to use its services. The larger the company, the less enamored it was of turning over control of a "co-employment" arrangement.
"About 12 months ago, we saw an opportunity to restructure our product offering ... reorganize our leadership team and recapitalize our company," Davis said.
Their solution: a new model to represent those mid-sized companies under a third-party, administrative services contract. Using software from PeopleSoft, AdvanTech would still handle functions such as workers comp and benefits for those companies, though one step removed. The venture capital funds plus a new $6-million line of credit from Wachovia will go a long way to launching that model, Murray said.
More companies have been turning to what is known as "integrated, multi-process" outsourcing of human resources in order to save money. Dataquest projects the U.S. market for that niche to grow from $2.5-billion in 2000 to $21-billion by 2005, representing annual growth of more than 50 percent. The broader market for outsourcing human resources work is expected to grow to $54.9-billion by next year.
Those numbers caught Trident's attention.
"We view (AdvanTech) as the perfect investment platform to participate in this high growth and vastly underpenetrated market opportunity," said Trident managing director Venetia Kontogouris, who is joining AdvanTech's board as part of the deal.
Trident, with offices in California, Illinois and Connecticut, has more than $1.2-billion of capital under management. Senior associate David Kosloff said the appeal of AdvanTech went beyond its industry to the people behind the company.
"These guys have tremendous operating experience and a past history of tremendous success," he said.
