Case Study: SmartMail

Explore this investment 06.01.04

Fast Facts

  • Sourced Platform for Executive
  • Originated Strategic Acquisition
  • Negotiate Strategic Sale

Randy Holleschau, a consultant to the U.S. Postal Service, formed SmartMail Services to take advantage of new work-share rules, which provided incentives to commercial mailers to handle sorting and long haul privately while letting the post office deliver “last mile” at a discounted rate.

The company had early customers, including Fidelity Investments. However, the company had limited capital to build a national delivery network or expand their sales force. Having researched the logistics area, we liked the structural opportunity and put the company under a letter of intent while inviting Great Hill Partners contact Jim Martell, a former FedEx executive, to evaluate the opportunity and take the CEO spot if it suited him.

Upon further study, together with Jim we concluded it was an interesting market opportunity, and we purchased 80% of the business for $12 million in 1999 and provided an additional $12 million of growth equity to build out the company. Jim rolled up his sleeves and went to work implementing the vision of building a national delivery network, recruiting management, implementing systems, expanding the sales force, and opening new locations.

While Jim focused on operations, GHP courted the No. 2 player in the market, DropShip, over a three-year period, culminating in an acquisition that solidified SmartMail as the market leader in its sector. The financing for the acquisition, arranged by GHP, allowed SmartMail to purchase DropShip without dilution to the management team.

Over five years, Jim and his team drove sales at SmartMail from $40 million to $250 million, attracting the attention of Wall Street and strategic acquirers. SmartMail was positioned for IPO when a GHP partner received a phone call directly from the head of Deutsche Post USA (DHL), requesting a preemptive purchase opportunity. The sale was completed for $400 million, all without utilizing an investment banker.

In summing up his SmartMail experience, Jim said, “Great Hill Partners is so much more than money. They found the deal and brought it to me. They helped me build my team and kept me focused; they were dogged in their pursuit of DropShip over the years when the DropShip principals wouldn’t take our calls. They knew how to get attractive financing from the debt and equity markets to help me build a big company. And they were by my side negotiating a sale with one of the biggest players in logistics. I can’t say enough about their capabilities.