The title of the press release caught my attention: Pfingsten Invests in Oliver Printing Co. - First Platform Investment for $382 Million Fund V.
Upon further research, it turns out that Pfingsten, a private equity firm focusing on middle-market companies, has partnered with a printing/packaging industry veteran, a fellow by the name of Brian Dunsirn, to aggressively create a new packaging entity starting with this platform acquisition.
I used several M&A buzz words in the preceding paragraph so let me define them so we are all clear on the meaning of:
In a nutshell, a platform company is usually the initial investment into an industry that a private equity (PE) firm makes with the stated objective of then adding on to the platform via the acquisition of numerous smaller firms that are synergistic to the platform’s operations. This is essentially what Pfingsten and Mr. Dunsirn plan on doing via the acquisition of Oliver based on the release:
“Pfingsten and Dunsirn established a partnership in 2014 to seek and acquire businesses in the packaging industry.”
This is a common method of operation for PE firms like Pfingsten that specialize in investing in the middle market, which leads us to our second definition. The middle market is generally defined as companies valued below $500 million and even more specifically, the lower middle-market are those valued below $100 million.
According to the Pfingsten website, they focus on making investments in manufacturing, distribution, and business service operations with valuations between $15 to $100 million, revenue from $20 to $150 million, and/or EBITDA of $3-$12 million (EBITDA = earnings before interest, taxes, depreciation and amortization). Although this is not stated, I bet that these numbers are primarily for platform acquisitions; subsequent “add-ons” could be much smaller. Indeed, one of their stated transaction types are “strategic add-on acquisitions for platform companies.”
Now the reason I bring this transaction up is that it is simply one example of an equity firm operating in the lower middle-market, making very targeted and well thought out acquisitions to compliment an initial investment in an industry. There are dozens and dozens of firms doing the same in a myriad of industry segments. Odds are really good that there are a few doing the same in your industry and you are not even aware of it.
But we are. Our buyer database contains over 34,000 registered organizations/entities that have told us specifically what types of businesses they are interested in acquiring or investing in. We use this information to create targeted buyer lists that help us to attract the attention of professional buyers.
And one under-publicized benefit of partnering with a lower-middle-market-focused PE firm like Pfingsten is that not only do they provide an initial capital investment in their targets, they also provide post-acquisition support in the form of professional management, financial acumen, operational expertise, and sales/marketing experience. This is how Pfingsten specifically describes what they do post acquisition:
“Pfingsten is an operationally-driven private equity firm focused on long-term value creation. We help businesses in ways few private equity firms can, applying our unique operational and global resources to offer real solutions to our companies, unlocking value and propelling growth.
We invest a minimum of 50% equity into the capital structure of each portfolio company, providing the flexibility to create value through operational improvements, professional management practices, global capabilities and profitable business growth, versus financial engineering. Our operating professionals, who comprise nearly half our team, work in partnership with company management, and our global capability opens doors in markets around the globe.”
I have taken the liberty of highlighting part of a key sentence in the paragraph above. The term “financial engineering” refers to the practice of using accounting methods to make an investment financially look better often without really providing any operational improvements. It is what has often given PE firms historically a bad name among business owners. This is unfortunate because far more firms, especially those that focus on the lower middle-market, provide services that often dramatically improve the post-acquisition operations of the entity.
If you are still skeptical about this, I recommend that you do further research on the American Investment Council’s website and specifically look at the following:
In addition, listen to what a few of our clients have to say about partnering with a PE firm:
Bottom line: If you are the owner of a privately held company and are looking for a partner to fund your growth, be sure to put PE firms on your buyer list. Your company may not be large enough to be a platform acquisition, but it might be possible to be “added on” to a synergistic portfolio holding.
To learn more about how this process works, please call us at 877-213-1792 and ask to speak with one of our senior business advisors. We would be glad to meet with you at one of our M&A seminars to discuss your specific situation.
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2016 Generational Equity, LLC. All Rights Reserved.
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