Vantas/HQ Office Suites: Changing an Industry

Opportunity: Identifying customer trends and launching an industry consolidation

• During the early 1990’s, David Beale acquired a small group of Executive Office Suites in Washington DC, New York and Boston, then named Alliance Business Centers
• The industry was then highly fragmented and had a generally poor reputation for quality and service. Financial performance of Centers varied widely and what little capital was available to operators came from landlords and investors who classified the investments as “real estate”
• The industry had failed to keep pace with the increasing demands of more sophisticated customers who were outsourcing their real estate and administrative services. An increasingly mobile workforce for companies of all sizes raised the demand for improved communication and support services. More than half of Business Center clients were employees of mid- to large size companies.

Private Capital Solution:

• David Beale, and his team recognized and seized three opportunities to shift the Executive Office business model from a Real Estate-driven model to an Outsourced Business Process Model: (i) dramatically increase Center cash flow by upgrading Center-level Management and improving service offerings; (ii) acquire Centers at attractive multiples due to lack of investor understanding and little competition; (iii) Cluster Centers within metro areas to achieve sales synergies, improve occupancy and drive additional services revenues
• Alliance raised over $20 million of Equity Capital from a group of investors led by Cahill Warnock and Northwood Ventures (including Mr. Fechtmeyer) and over $40 million of Bank Financing to launch an aggressive acquisition program
• David Beale substantially augmented his management infrastructure through improved reporting and systems and selected hires from the acquired companies to import “best practices” from around the U.S.
• During 1997 through 1999, Alliance (later renamed HQ Vantas) acquired nearly 200 Centers and became the largest operator in the United States
• Sold to HQ Office Solutions for over $200 million, representing an 8X return on the original investment