Pace Analytical quietly grew over 40 years to be one of America's largest environmental labs

In the 1970s, following decades of industrial pollution highlighted by Cleveland's Cuyahoga River catching fire and disease and death creeping from buried barrels of toxins under a New York housing development called Love Canal, Congress started writing environmental law.

Steve Vanderboom, a 24-year-old graduate student studying for a master's degree in environmental engineering at the University of Minnesota, saw a business opportunity in 1976. He told his bosses at a Roseville chemical-testing lab they needed to move beyond municipal clients.

"I was reading these regulations and I was getting excited," recalled Vanderboom. "I told the owners that our good Minnesota companies are going to have to adapt. I said we should expand to industrial waste. The owners stayed focused. I was so upset that I told my wife we should start our own business."

Two years later, his wife out of school and working as a nurse, Vanderboom and a partner secured a $43,000 Small Business Administration-backed loan and opened Pace Analytical Services in 1,600 square feet in a low-rent building near Nicollet Avenue and Lake Street.

"We made money in the first year," recalled Vanderboom, 66.

Forty years after launching the company with former partner Bill O'Connor, a chemist, Pace is the largest American-owned lab company for environmental testing and sampling as well as testing for pharmaceutical, medical and drug devices.

The company, which projects revenue of $290 million this year, has grown at a compound annual rate of 12 percent over the last four years and employs 2,600 employees at 40 laboratories and other locations around the United States.

Vanderboom also has eschewed most interview requests over the years.

"I'm totally content if nobody knows our business, except our customers," he said from his modest office this month at Pace's low-slung headquarters and main lab in an industrial park in southeast Minneapolis.

Pace serves a client list of blue-chip customers such as 3M, BP, Johnson & Johnson, Duke Power and dozens of other businesses and government agencies that want to prevent pollution and identify environmental threats, as well as test various chemical concoctions.

Business boomed in the 1980s as companies moved to comply with regulations and worked to head off future environmental issues. Vanderboom bought out O'Connor in 1986, after the company hit 50 employees, because O'Connor didn't want to be part of a big operation.

There was one complication.

"I was in over my head," recalled Vanderboom of running a multimillion-dollar business. "I had no idea what I was doing."

Vanderboom sought counsel and investment by the late 1980s from the venture-capital unit of Piper Jaffray and Summit Partners of Boston.

Things boomed, until well-backed competitors started to flood the market. Pace had to cut prices to keep share as one of the five largest environmental testers. The company was losing serious money in 1994-1995 and Summit and Piper were unwilling to invest more.

Vanderboom, the majority shareholder, turned to the late industrialist Rod Burwell.

Burwell stepped up with millions in patient capital.

"Rod financed the purchase of seven more labs in 1995 [alone]," Vanderboom recalled. "We did really well together. He never had an office here. We'd have the board meetings over scotch at his house when we had something to talk about."

Burwell, an engineer by training, specialized in reviving underperforming companies in a variety of industries.

His family, the majority owner of Pace, gave Vanderboom time to figure out the future, after Burwell's death in 2015.

"Rod and the family were very happy with Pace," Vanderboom recalled. "Over 20 years, Rod had a [double-digit] annual compound return."

Vanderboom wanted to continue running the business rather than selling to a competitor.

About two years ago, Pace sold to Aurora Capital Partners, the California-based private-equity firm that also owns Twin Cities-based Restaurant Technologies. It collects used cooking oil from thousands of commercial kitchens and sells it to biofuel producers.

Vanderboom, 66, has no plans to quit.

"Steve was a good guy with good ideas, but ahead of his time," recalled Hunt Greene, the veteran investment banker who led Piper Jaffray's investment arm 30-plus yeas ago. "I don't recall our venture fund outcome, but it was not great. But it shows the value of venture capitalists who support great entrepreneurs.

"The Twin Cities needs more 'Steves' and venture investors. Things have worked well for Steve. It just took a little longer than expected," Greene said.

The biggest environmental-testing outfit in America is TestAmerica of Ohio, owned, ironically, by Chinese interests.

"I just want Pace to be the best company in our industry," said Vanderboom, still a minority owner. "I have learned how to run a big business. Aurora is a good partner … We have a lot of good, idealistic chemists and other people working here for us.

"And I have not been bored once in 40 years. The morning that I wake up and do not want to go to work, I will establish a retirement date."

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.