🔒In tiny Granby, private equity firm Squadron Capital builds a nearly $1B portfolio

During his 30-year military career, David Pelizzon served in many capacities, from helicopter mechanic to paratrooper to front-line soldier, while rising in the ranks from a private — as a 17-year-old who enlisted before graduating high school — to colonel, before retiring at age 47 in 2003.

While he credits the opportunities he found in the military for some of his success — like earning an engineering degree from West Point and a master’s from Harvard’s Kennedy School of Government — Pelizzon says the most important lesson his three decades of military experience taught him is the value of servant leadership.

“In the infantry, leaders eat last,” he said.

It’s a formula that Pelizzon has found works well in business, too, and drives his leadership philosophy as CEO of Granby-based Squadron Capital, an industrial holding company that owns a handful of U.S.-based medical device and plastic manufacturers.

Pelizzon, 65, got his start in business after retiring from the army and acquiring a small cutting-tools manufacturer in Pittsfield, Mass.

“The previous leadership had been a disaster,” he recalled. “But I found that people responded very positively to leaders who cared about them [first] and themselves last.”

Since then, Pelizzon has grown Squadron Capital from an organization that recorded a roughly half-million dollar loss in 2008 — the company’s first year of operations — to a business that he says will generate nearly $100 million in revenue this year and be valued at $1 billion within the next three years.

The company was started with funding from the Chicago-based trust of Jennifer Pritzker, a family heiress to the fortune of the Hyatt Hotels’ founder and the Marmon Group, founded by her father. Pelizzon met Jennifer Pritzker in the army in 1974.

In part, Squadron’s success has been fueled by a pediatric orthopedic market that has grown substantially in recent years and is projected to increase 10.2% annually from a roughly $1.6 billion market in 2020 to more than $3.4 billion in the U.S. alone by 2027, according to data from Insight Partners, an industry group. But equally important, says Pelizzon, is Squadron’s focus on companies that meet key criteria: strong leadership, great products, growth strategy and a need for a financial partner.

“We’re not trying to turn around these companies,” Pelizzon said.

Long-term view

One of the businesses that met Squadron’s standards is Orthopediatrics, an Indiana-based medical device company, founded in 2006, that focuses exclusively on pediatric orthopedic surgery.

The company makes plates, screws and rods to treat conditions from cerebral palsy and scoliosis to sports injuries and traumatic accidents.

Mark Throdahl has served as Orthopediatrics’ CEO since 2010 and says the investment from Squadron Capital was pivotal to the company’s growth.

Orthopediatrics got off the ground with $20 million raised from friends and family, but given the capital demands of the medical device industry, Throdahl said outside investment was needed.

Squadron, he says, became the company’s largest backer, investing more than $75 million between debt financing ($29 million) and equity ($46 million), and helping Orthopediatrics go public in 2017, a move that raised more than $170 million from 2018 through 2020.

Today, Squadron owns about 27% of Orthopediatrics’ stock, which has increased from $13 per share at the IPO to more than $63 today.

Squadron’s stake in the company, as of June 30, is now worth $347 million. Orthopediatrics’ products sell in 44 countries around the globe and — apart from a dip in 2020, as elective surgeries declined amid the pandemic — Orthopediatrics’ annual sales growth, Throdahl says, has been around 20%.

Unlike many private equity firms, Throdahl says, Squadron Capital’s long-term, company-first focus has created a strong working relationship.

“Typically, venture capital or private equity groups have very demanding [conditions] in terms of the share of the company they want; they are often called loan to own,” he said. “They [typically] have a three-year window before the investor is going to sell out [their stake in the company], so the clock’s ticking.”

In contrast, Throdahl says, Squadron has provided flexible financing and required no fixed timeline for wanting to liquidate its investment at a profit. That’s vitally important in the medical device sector, which can require several years to generate profits.

That long-term approach has paid dividends for Squadron Capital, which has seen Orthopediatrics’ market valuation grow from $7 million in 2012 to more than $1.25 billion today.

That type of return on investment has enabled Squadron Capital to build a portfolio of operating companies that includes Waterbury-based Forum Plastics, which makes custom medical molding; Squadron Defense Group, which specializes in security solutions for commercial businesses and government agencies; and Structure Medical, which manufactures spine, trauma and arthroscopic medical implant products.

In June, Squadron acquired for $85 million Tennessee-based DT MedTech, whose product line includes a total ankle replacement system.

Pelizzon says he gets calls weekly from private equity firms trying to buy companies within Squadron’s holdings, but he has no plans to sell any right now. Overall, he said Squadron’s portfolio saw an uptick in value over the past year.

Squadron’s operating companies also had no layoffs during the pandemic and provided special bonuses to workers because of the potential COVID risks they faced on the job.

“They’re not [investing in our company] to be charitable,” Throdahl says, “but they are big believers in the cause our company exists for, which is to transform the lives of children with orthopedic conditions.”

Charitable giving

And it’s not just in its business dealings that Squadron is making a difference, says Aina Hoskins, who oversees the company’s philanthropic giving, as one of Squadron’s five executive officers.

The Squadron Charitable Trust, she says, invests an estimated $700,000 annually in causes in the communities where its companies operate.

“We sponsor a fellowship at a Boston hospital for orthopedic surgery,” Hoskins said. “But we’ve also helped to address the digital divide [for economically challenged communities] during COVID and done smaller contributions to soup kitchens and food pantries.”

One of the largest charitable donations the company makes is an annual gift — $150,000 this year — to the Greater Hartford YMCA’s summer camp program, which serves hundreds of children from 33 towns at 14 camp locations across Greater Hartford.

Pelizzon said the community giving is personal to him.

“As a child, I went to camp for a couple of years, but for a variety of reasons my family was unable to [continue to] afford it,” he said. “And I started to wonder how many kids [in our region] would like to go to camp but aren’t able to [afford it].”

“When you have the vision and generosity of someone like David and Squadron Capital and match it with an organization like the Y whose mission focuses on serving children and families, the result is a summer of opportunity and fun for hundreds of kids in our area,” said Brian Liss, executive director of the Farmington Valley YMCA.

Pelizzon said philanthropy is one of Squadron’s core values.

“We don’t live in a vacuum, and I want our people to work for a company where they feel they’re part of something bigger than themselves,” he said.