Insights & Info

Insights > PE Firm Case Study

PE Firm Case Study

By Capital Markets

business growth

The business media is often heavily weighted by the operations of firms that specialize in ‘mega’ deals rather than focusing on companies in the lower middle market. However, firms that work in this market operate very differently to those who perform those billion-dollar deals – usually they have a ‘buy and build’ strategy rather than a ‘buy and break up’ philosophy. A good example of this in action happened in February of this year, when it was announced that Pfingsten Partners’ portfolio company Burton Saw and Supply Holdings had acquired Global Tooling and Supply, L.L.C. The announcement came the following explanation:

“Global Tooling has supplied Burton Saw for the past 20 years and we are aligned with Burton Saw's culture, vision and values,” said Global Tooling's owner Eric Allen. “This combination is a logical fit and we are very excited about the future.” As part of the transaction, Eric and Patty Allen will become shareholders in Burton Saw.

“Global Tooling's diverse business model, impressive growth track record, outstanding customer service and strong cross-selling potential made the company an ideal addition to the Burton Saw platform,” said Craig Tompkins, CEO of Burton Saw.

This is Burton Saw's second strategic acquisition since Pfingsten became the majority shareholder in December 2014. The transaction is part of Pfingsten’s strategy to create the leading supplier of consumable products and equipment to North American wood product manufacturers.

There are several salient points that can be drawn from such a case study. The first is that Private Equity firms, such as Pfingsten, will often make initial investments in industries that can be consolidated and in doing so will create a solid return on investment for their investors. These initial investments are what’s known as ‘platform’ or ‘portfolio’ companies. Once this has been made, they can go on to research the industry, invest in the growth and seek out logical ‘add on’ opportunities. This is exactly the case in the scenario put forward. In this case, Burton Saw was Pfingsten’s ‘platform’ or ‘portfolio’ company in 2014. In the two years that followed, they made two add-on acquisitions, of which Global Tooling was the second.

Another important point in this particular case study is that Global Tooling had been a supplier to Burton Saw for several years, which fit well with Pfingsten’s goal of creating a leading supplier in the industry. This idea of building businesses is what Private Equity firms like Pfingsten focus on. Many business owners hold a dim view of PE firms, fearing that the legacy of their businesses may be affected or that the security of loyal, long-term employees could be compromised by back office and operational consolidation. Whilst this can occur, you’re more likely to see your legacy grow and employees be given more opportunities by partnering with a middle-market equity firm. Pfingsten is described as:

“...an operationally focused private equity firm formed in 1989. From its headquarters in Chicago, IL, and representative offices in ChangAn, China, Chennai, India and New Delhi, India, the firm builds better businesses through operational improvements, professional management practices, global capabilities and profitable business growth rather than financial engineering. Since completing its first investment in 1991, Pfingsten has raised four investment funds with total commitments of approximately $1.0 billion and has acquired 110 manufacturing, distribution and business services companies.”

The key points here are that they are “operationally focused” and dedicated to “building better businesses”. Firms tend to do this by investing in their holdings rather than consolidating back office operations. However, some business owners assume that these PE firms are not behind the acquisitions due to it being made through a ‘portfolio’ company. Global Tooling is a good example of this in action. In reality, there are thousands of PE firms across a multitude of industries looking for similar opportunities.

A common theme that Generational Capital Markets (part of the Generational Group) often sees through making similar acquisitions is that their company is poised for growth because of their partner and that their employees have more opportunities available to them. Whether your company is a good fit for an equity firm is an issue that can be addressed with the help of an professional M&A advisor. It is only through talking about your business goals, personal needs and financial objectives that the appropriate buyer and deal structure to meet these goals can be discovered.

Generational Capital Markets has closed a number of transactions covering a full range of buyer types. If you would like to learn more about buyers for your business, one of our senior business advisors would be happy to walk you through your options.

 

Make an informed decision

The best decisions in life are informed decisions. We release educational business insights like this every week. Subscribe to make sure you don’t miss the latest news, views and analysis.

Success

Success, you have been added to our list.

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.
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
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
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
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
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 quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
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
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
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
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
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
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
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.
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 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
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 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
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
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse