Opportunity for Middle-Market Companies | Plante Moran
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Private Equity Firms Provide Opportunity for Middle-Market Companies

Thriving companies often seek out private equity firms to provide capital for growth or as part of a succession plan. Conventional wisdom dictates that it’s precisely these kinds of companies that private equity firms target — successful, sustainable organizations with strong balance sheets. While that’s typically true, some private equity firms target distressed organizations as well, providing a new opportunity for companies struggling to turn things around.

We recently sat down with two very different private equity firms to learn how they can help middle-market companies and what they look for in the businesses they acquire. Here’s what they had to say. 

Glencoe Capital, LLC

Headquarters: Birmingham, Michigan, and Chicago, Illinois

Targets: Thriving, middle-market companies valued between $25 and $125 million

Interviewees: Jason Duzan, managing director of the Michigan Opportunities Fund, and Greg DeMars, associate

Tell us a bit about Glencoe Capital.

JD: Glencoe Capital is a private equity firm focused on middle-market acquisitions and growth equity investments. Since 1993, we’ve completed more than 25 deals with a combined transaction value of more than $1 billion. We’ve managed three funds out of Chicago and have recently held our first closing on our Michigan Opportunities Fund — a fund dedicated to identifying candidates for investment in the state of Michigan.

What are the main reasons that thriving companies choose to sell to your private equity group?

JD: We’re not day-to-day managers of the business. When we get involved with a company, we work together to plan for the next five years to create value for our investors and for the management team. Many times companies are capital starved or could use more sophistication in managing capital structures. We invest capital wisely and provide businesses with the financial and operational tools they need to succeed.

GD: We’re also fortunate to partner with Glencoe’s proprietary Executive Network — a group of 40 former and current C-level executives who work closely with Glencoe Capital. These executives have spent 20-30 years in industry, have sat in the same chairs as CEOs, and can provide significant insight and guidance relative to the businesses.

What attributes do you look for in the companies you acquire?

GD: Glencoe Capital invests in middle-market businesses across a variety of industries that are based in Michigan and looking to expand into the state. We target companies with strong, experienced, and motivated management teams; market-leading products, processes, or technologies; and opportunities to grow organically or via acquisitions. We typically look for companies with an EBITDA (earnings before interest, taxes, depreciation, and amortization) between $5 and $15 million, although we will do smaller deals if companies demonstrate an opportunity for growth.

Tell us about the Michigan Opportunities Fund.

JD: As part of her 2008 State of the State address, Michigan Governor Jennifer Granholm earmarked $300 million in equity capital to invest into Michigan companies — a portion will go to venture capital and co-investment, and the rest will target mature companies. Glencoe Capital was chosen to manage the allocation for the mature companies, including buyouts and growth equity investments. We’re looking to invest $150 million in equity capital in 8-10 Michigan companies over the next three years, which corresponds to a $10-20 million equity investment per business.

Have you closed any deals yet?

JD: We’re actively pursuing opportunities in Michigan, and expect to announce something shortly.

Is there anything else you’d like to tell middle-market companies about Glencoe?

JD: The principal objective of the Michigan Opportunities Fund is to invest in successful businesses and provide attractive returns to investors. This, we believe, will create vitality for businesses in Michigan. These are obviously challenging times, but we’re pleased to be able to help stimulate the economy by finding the best businesses in Michigan and helping them continue to grow.

TMB Industries

Headquarters: Chicago, Illinois

Targets: Underperforming, middle-market businesses with revenues between $30 million and $500 million

Interviewee: Tom Begel, chairman and founder, TMB Industries

I understand that 2009 marks TMB Industries’ 20th year in business.

TB: Yes, it does. We’ve had a great success rate over that time period. We’ve acquired 41 businesses in the general industrial, automotive, medium and heavy-duty truck, and engineered products sectors. We’re proud of our accomplishments and proud that we’ve been able to help struggling businesses across the Midwest.

Which raises a great point: why does TMB Industries target distressed businesses?

TB: We know that most other firms target well-managed, profitable entities, so there are a number of opportunities to take advantage of in the distressed market. Almost all of the investors at our firm have an operating background versus a financial one, so we bring that experience to bear by acquiring companies that aren’t running well for one reason or another and turning them around to create value. We don’t focus on organizations that are in dire straits; there has to be some opportunity for our team to turn things around and make a profit. Still, we’ve brought a unique presence to the private equity environment and helped many struggling organizations.

What attributes do you look for in the companies you acquire?

TB: We target organizations in the industrial manufacturing sector that could be better managed or need capital to grow. We target companies that have some kind of specialized technology or methodology that will allow them to compete in the North American environment; we don’t target organizations whose plans include going offshore.

How do you help struggling companies regain and grow profitability?

TB: We assist companies with everything from strengthening their IT and cost accounting systems to making sure their people are rewarded appropriately for the work they do — everything that a struggling company needs in order to be brought back to health.

I understand TMB functions a bit differently than most private equity companies, since you typically rely upon your own capital and perhaps some from a small number of your investment partners.

TB: Absolutely. We’ve deliberately never raised a fund…not that we haven’t had opportunities. As long as we have the ability to invest in the deals ourselves, we know we have more invested than a typical private equity firm. We may do fewer deals per year than most other firms, but we’re very focused on the deals we enter into, because it’s our money, and our livelihood depends upon these companies’ successes.

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Craig Thornton