The leaders of Granite Equity, a nontraditional private investment and holding company in St. Cloud, Minnesota, know the strength of the area in which they sit. They aren’t looking for portfolio businesses with a Manhattan financial district vibe or a go-global worldview. They want local, family or closely held businesses. And they want to grow them right where they are.

The firm was founded by a group of 12 family business owners who were interested in creating a local ownership vehicle for retiring business owners. Generally, family businesses try to succeed the ownership across another generation of family. “That’s often the preferred method,” says founder and CEO Rick Bauerly (MBA 1996). But when that’s not possible, then we want to be the next-best alternative, which is a group of family businesses with similar cultures, values, and goals,” which include the health and wellness of employees, a long-view strategy, and keeping the family businesses home.

For Bauerly, owning and growing Minnesota businesses made perfect sense. If you compare states across the country on a scatter plot, you tend to see an increase in performance when those states invest in local, public goods like education, health care, infrastructure, and public safety. You can call it causation or correlation, says Bauerly; it doesn’t really matter to him. He calls it smart investing in the place he calls home.

The “Star of the North” has long been known for its agricultural strengths, but Minnesota now occupies top “best-of” lists in other categories, such as energy and innovation. U.S. News and World Report’s state rankings placed Minnesota at number two in 2018, citing its low unemployment rate. The Twin Cities, Minneapolis–Saint Paul, are home to the majority of the state’s 17 Fortune 500 companies. They also boast a rising labor force that’s among the strongest in the country, while the workforces of other states are dwindling. Health care in the area is strong, highlighted by the Mayo Clinic, and the education system is thriving. Why would Granite Equity move businesses anywhere else? And why would retiring business owners want their hard work taken from the places that helped build them up?

Take the case of Microbiologics, a company that provides prepacked, ready-to-use microorganisms for quality-control testing. The business has been a Granite Equity portfolio company for the last decade. It was founded by an entrepreneur who, as he was approaching age 65, was starting to do some life and estate planning. After poking around to find the successor and the next board and CEO, he chose Granite Equity over strategic buyers and traditional private equity firms. “Since then,” says Bauerly, “it’s just been a story of abundance. He built a great business over 25 years through all the entrepreneurial zeal that is essential in that first phase.” Granite Equity brought professional resources, networks, partners, and strength in business planning, strategy, leadership, and recruitment. And the company has grown dramatically, he says. As with the founder of Microbiolgics, Granite Equity works with business owners to ensure they are involved to the extent they want to be. That means owners are able to continue as broad stakeholders, rather than merely small stockholders. Personal financial futures, and those of the generations that follow, are considered in every acquisition.

How does Granite Equity find success stories like Microbiologics among the many businesses that call Minnesota their home? Ask any senior leader—including cofounder and partner Pat Edeburn (MBA 1994), director of strategy services Joanne Kudrna (MBA 1981), and partner Shelly Bauerly Kopel—and they will tell you Granite Equity looks for companies that value employee wellness (they want their people to be happy, healthy, and productive); a long view (Granite Equity plans for businesses, including Granite Equity itself, to be sustainable for 100 years or more); and investment in community (often businesses owners or senior officials contribute to the community financially and through volunteer positions on local boards).

“The concern that we had seen in this community and the business owners had seen,” says Edeburn, “was that some of what were considered to be the jewel businesses were either bought up by corporate acquirers or by private equity firms that didn’t have as much of a sense of stewardship with the community.”

Edeburn points to a longtime local business that had been through a succession of corporate owners, which wasn’t helping the business or the community. “If we hadn’t stepped in and bought at the time, there’s a good chance that the operations would have been shut down locally and moved out of the community,” he says. “So I think the community really rallied when we bought that business, turned it around, and had success.”

And success for Granite Equity doesn’t mean just keeping business local and in the Minnesota family; it’s also about the bottom line. Edeburn observes, “We had done well for the community, but also made a very handsome return for the business.”

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