- Nicholas Antoine and Chad Strader founded Red Arts Capital in 2015.
- The Black-owned private equity firm targets supply-chain investments in trucking and logistics.
- In October, the firm set out to raise its first institutional fund, worth up to $225 million.
When Nicholas Antoine and Chad Strader first met at the Starbucks on Michigan Avenue in Chicago, they dissected the book ‘Why Should White Guys Have All the Fun?’
The book — by Reginald Lewis, the first Black man to execute a $1 billion leveraged buyout in the US — had a firm hold on Antoine and Strader, who hatched a plan together to do something few Black people have done in the US. They would start a private-equity firm.
“There really aren’t that many Black-owned investment businesses period. And 100% Black-owned private equity firms? You can count on two hands,” Antoine told Insider in an interview.
The pair founded Red Arts Capital in 2015, and is currently raising a new fund of up to $225 million, adding dollars to what is currently an extremely small pot.
Women and minority-owned private-equity firms accounted for just 6% of the total capital raised in the US in 2021, according to Fairview Capital’s annual Market Review of Woman and Minority-Owned Private Equity and Venture Capital Firms. That may be changing: Fairview reported a 25% uptick in the number of women and minority-owned private-equity firms from 2020 to 2021, with the number now totaling 627 firms in the US.
African-American investment firms are growing in number too, albeit from a relatively low starting point. The number of Black-led US venture capital and private-equity firms raising money in 2021 rose 25% from the previous year, reaching 84 firms, according to Fairview.
But just 15% of those Black-led investment firms execute buyout strategies like Red Arts — a fraction of the private-equity pie dominated by outfits helmed by white men. These figures also only include firms led by Black people, not necessarily Black-owned firms. Antoine told Insider he wants to expand that very small club.
“Diversity is so important in finance, and there’s so little of it,” he said.
Antoine has spent time with top Chicago investment luminaries like John Rogers, Chairman of Chicago’s Ariel Investments. But the first business role model he brings up is his father.
“He was being entrepreneurial just for coming here. But he was also an entrepreneur,” Antoine said about his father, an immigrant from Trinidad and Tobago, who built and sold a restaurant business in New Jersey. “I always wanted to be like him.”
Strader similarly grew up with a family auto-repair business in Augusta, Georgia. He ended up planning Pepsi’s supply chain, a position that exposed him to the transportation industry and formed the basis of Red Arts’ investment thesis.
Niche players by design
Specializing was part of the plan from that first meeting, and Strader told Insider his supply chain background helped the pair identify transportation and logistics as an investment area with plenty of opportunity and relatively few dedicated players.
“I think we’re kind of hardwired to be contrarians in terms of our thinking and there’s a lot of focus right now on technology and health care,” said Antoine. “We were looking at businesses and thinking about industries where there was an under-appreciation for the value they were providing to the economy and to society.”
A bench of advisors also contribute subject matter expertise, including former Universal Logistics CEO Jeff Rogers and Herb Shear, former President of Genco, which was acquired by FedEx in 2014.
Rogers, a long-time operator in the trucking industry, said Antoine and Strader take an unusual approach to buyouts, in that they want both sides to come out satisfied.
“There’s not a lot of win-win with PE in my mind sometimes. So that’s why I like those guys,” Rogers told Insider.
Riding the supply chain wave
Red Arts has made five acquisitions with two exits so far. Its investments are in the third-party logistics and less-than-truckload spaces, both of which have benefited from the pandemic-driven boost in e-commerce.
“We always had an idea about e-commerce and LTL but I would say the last two years have accelerated that tremendously. LTL freight volumes have increased. The size of the average shipment, the average weight, all of those dimensions have increased. And that’s a big part of the strategy,” Strader said. Red Arts sold LTL firm Midwest Motor Express to Knight Swift Transportation for $150 million in December in what Strader said was a nearly 8X return for investors. The sale was the firm’s second exit in 2021.
Supply chain buyouts have reached a turning point recently, according to Antoine. Smart transportation investors are less likely to buy a company simply to strip it for parts.
“The industry has become a lot more efficient, a lot more competitive,” Antoine said. “That means that financial engineering is less of a tool to create value for investors. It requires more expertise, more planning, and thoughtfulness,” he said.
A mission of wealth creation
On top of financial returns, Antoine and Strader look to spread wealth among demographics that are often left out of private equity deals, by maintaining a keen awareness of the diversity of a management team at the moment of acquisition, and attempting to improve it before exit.
Current investment Sunset Pacific Transportation, an specialty logistics firm based in California, had a nearly all white and male management team when Red Arts took over in March 2021. Today four of the five-person management team could be considered diverse, considering race and gender.
“Four women are going to receive significant proceeds when we exit the deal. That’s very different than what it was prior to our ownership,” Strader said.