As we have reflected in the past, it is interesting to see the investment patterns of private equity firms that specialize in acquiring privately held, lower middle-market businesses. These firms do their research and focus on business opportunities that make sense and offer growth possibilities over the longer term.
Boston middle-market private equity firm BV Investment Partners made a majority investment in C.F. Stinson, partnering with the family owners of the textiles company. Keith Stinson and Glenn Stinson, the third generation of the family-owned company, will continue to manage the target and maintain an ownership interest.
C.F. Stinson, based in Rochester Hills, Michigan, designs and markets textiles for commercial interiors, including customers in the hospitality and health care sectors.
A couple of items are important in this segment. First, most amazingly, the owners represent the third generation for this family-owned business. That is remarkable since research tells us that “less than one-third of family businesses survive the transition from first to second generation ownership. Another 50% don’t survive the transition from second to third generation.” This generational succession into the third generation is rare, indeed.
And a related item, most business owners, especially those that have inherited the business from prior generations, are usually quite concerned about the legacy of the business, the family name, and how it will be affected by an ownership change. This legacy can take many forms and can be reflected in longevity, company name, employee base, and even standing in the community. I am not sure if the two Stinson owners were concerned about the legacy, but taking a surviving business into the third generation is a tremendous responsibility.
Finally, it is critical to note that the current owners are being retained in the structure of the new company. This not only will allow them to maintain the operations of the firm and most likely participate in key management decisions but it will also enable them to be engaged as partial owners. This is significant from a financial standpoint, as it will allow them to participate in a second liquidity event later when a much larger entity is either taken public or sold by BV. And they do have plans to grow this business, according to Mergers and Acquisitions:
Sean Wilder, BV principal, says the PE firm plans to grow Stinson through both acquisitions and through organic expansion, similar to the way it managed the firm’s investments in ECRM and Plasco ID—business-to-business, software-driven companies. BV has invested more than $2.7 billion in 84 companies since its beginning in 1983, targeting investments in the information and business services and communications industries.
According to their website, BV has nine holdings in its current portfolio and nearly 30 that it has held historically. So that adds up to 39 “platform” companies, but the article above indicates that it has made 84 investments, which tells us that a substantial portion of its acquisition activity is focused on add-on companies.
This is a method of growth that is becoming more and more popular with funds like BV that specialize in lower middle-market companies. An initial investment is typically made in a portfolio, or platform, company and then over time, usually 5-7 years, strategic add-ons are targeted to round out the holding to create a much larger, usually more profitable entity.
This is what the article indicates BV will do with C.F. Stinson. You can bet that the professionals with BV, along with the Stinson’s, already have some ideas for future acquisition activities in the Stinson space. And they are not the only ones interested in this niche, according to Mergers and Acquisitions:
Recently, in April, the Riverside Co. announced it was purchasing another textile distributor to the health care and hospitality sectors, Momentum Group, from Norwest Equity Partners. The evolving health care industry in the U.S. in the wake of the Affordable Health Care Act, or Obamacare, has been frequently cited as a source of middle-market M&A.
This is great news if you own a business in this industry (or related industries) right now. However, keep in mind that this is simply one example of an active private equity group moving forward with this type of acquisition plan. There are literally dozens of others using the same strategy in other industries.
To find out if there are active PE firms in your industry, give us a call and attend a Generational Equity M&A seminar. Although we won’t identify buyers for your business at this meeting, we will allow you to see lots of active examples similar to the BV sample, which are pursuing the same strategy.
Carl Doerksen is the Director of Corporate Development at Generational Equity, part of the Generational Group.
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Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.Bryan D. Horn, Owner, Over Under Clothing
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Dear Chris and Andre, I just wanted to say thanks for all your help. Even though this process was not an easy one, it was comforting to know that I had a capable team standing beside me. You made me feel like we were almost your only client or at least the most important one. Thanks again, and I will recommend your service in the future.Shenille Engelhart, Owner – CLS Technology
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!Eric Erlandson, Owner, Action Fastenings, Inc.
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
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