We sat down with Ryan Supple, Director of Deal Origination for HBM, to reflect on the company’s business development efforts and the recent acquisition of Schafer Industries and Aerofil Technology
RS: At a high level, our deal activity experienced a positive trajectory over the past few years. We experienced a 90% increase in deal flow in 2016, and year-to-date 2017 activity reflects similar growth trends. Differentiating ourselves has been a key strategic focus and one of the reasons why we have experienced such success in middle market M&A.
We make sure that our key relationships understand the value proposition we offer middle market companies and how we are different from traditional private equity. We deploy a unique patient capital investment approach which means that we look to partner with our portfolio companies indefinitely; atypical of the traditional private equity five-to-seven year hold period. The long-term investment horizon completely changes the rules of the game as we do not require a quick pay-back of our investment dollars, rather we seek to help our companies realize their full strategic potential.
Although we call our investment approach “patient,” this certainly does not mean we take our foot off the gas. We are quick to act on a new opportunity when we know it is the right one. Earlier this year, we refined our investment criteria and not only communicated to our relationships what these refinements were but more importantly, why.
We realize that companies we are interested in pursuing, typically with an EBITDA range of $10 – $25 million, are going to be fiercely contested in the middle market community. We are fully prepared and have a dedicated investment team that works together to respond to new opportunities. One of our recent acquisitions, Schafer Industries, was a competitive auction led by a large sell-side banking group. Given the history of the relationships that we have established with the investment banking firms, there was no doubt that we would be responsive and diligent in our communication. In the end, we believe our differentiated investment approach and how we communicated our intentions with Schafer are what got us over the finish line.
CC: You just mentioned HBM’s recent acquisition, Schafer Industries. Why was the acquisition a good fit for both parties?
RS: Similar to HBM’s history, Schafer Industries has an 80-year successful track record built on teamwork and a focus on providing excellent customer service. It was clear to both parties that our core values were aligned. Although a few of Schafer’s leadership team were retiring, we were quick to establish an integration plan that would ensure the long-term success of both Schafer’s employees and customers.
An advantage of our patient capital investment approach is that we can invest more than just capital into a business. Uniquely, we offer our companies enterprise-wide solutions including talent development, technology, and strategic planning. Schafer and our other companies benefit from these solutions as many do not have the resources themselves to roll-out a large technology project, for example.
Schafer immediately experienced the benefit of our talent development program as we were able to shift one of our previously identified leaders, Eric Van Rens, from his current role as Vice President of Sales and Marketing at Mississippi Lime, to CEO of Schafer.
From HBM’s perspective, Schafer fits perfectly into our investment focus on making control investments in niche manufacturing companies. We saw long-term growth potential in Schafer and are now ready to make sizeable capital investments to fulfill the potential of the company. We look forward to working alongside Van Rens and the entire Schafer team to build upon their successful 80-year track record.
CC: It’s been a busy third quarter, as HBM just completed a second platform acquisition, sixty-days after the Schafer transaction. Did the acquisition of Aerofil Technology differ from Schafer, and what opportunities does HBM see for this company?
Unlike Schafer, the Aerofil Technology opportunity came about from a mutual St. Louis relationship; therefore an intermediary was not involved in a meaningful way. Like the Schafer transaction, the process was smooth and efficient. In addition, the underlying, intangible factors that made the transaction a good fit for both sides were culture, strong long-term growth prospects and HBM’s long-term investment strategy.
I feel HBM’s two most recent transactions demonstrate our ability to work through two vastly different acquisition processes effectively and efficiently, reinforcing our refined investment focus and strategy through each process.
We are truly excited about adding Aerofil Technology to the HBM portfolio. The company has already established itself as a leading lean contract manufacturer for aerosol and liquid packaging for the automobile, personal care, household and insecticides industries, providing a strong foundation for potential future add-on opportunities. Their lean processes create enormous efficiencies and cost savings for both the customer and company, a tool that we will seek to leverage across the entire HBM organization.
CC: How does HBM plan to integrate both companies and do you foresee any challenges?
RS: As I mentioned earlier, we have built a robust infrastructure to facilitate integrations of new platform companies. Our enterprise-wide services, specifically, have assisted with this process.
Talent development is one enterprise-wide service that many of our companies experience the benefits of straight away. Similar to the example I provided earlier of Eric Van Rens stepping in as CEO of Schafer Industries, there was a leadership role at Aerofil Technology that required immediate attention. HBM’s VP of Corporate Development, Daniel Wright, was asked to become Aerofil Technology’s new President and COO. Although Daniel has only been with HBM for a short period of time, his leadership capabilities were evident as he led us successfully through two acquisitions while implementing our new Accelerated Development Program for our associates. Additionally, Daniel had tremendous experience in the chemical industry in both a commercial and business oversight capacity.
IT is a second enterprise-wide service that we offer our portfolio companies. Many of our companies are not at the size to have their own dedicated IT department, making system upgrades and implementations burdensome. Last year, HBM hired Mike Chill to lead our company-wide technology efforts. Mike is focused on creating IT efficiencies across HBM and its companies as well as assisting our companies with one-off projects. He recently worked on an efficiency project at one of our companies, Delavau, to automate the inbound customer orders more efficiently and schedule production batches to minimize forced production interruptions.
Because of the enterprise solutions and the team HBM has built, we are confident that we will effectively be able to implement both Schafer and Aerofil Technology into our family of companies and work with them on developing a plan to reach their long-term vision.
CC: Looking ahead to 2018, do you foresee any changes in middle market M&A activity? What is next for HBM?
RS: We anticipate M&A activity to remain relatively active well into 2018. We foresee valuations remaining high, inflated in some instances, and the low interest rate environment and amount of private equity capital waiting to be deployed only reinforces the level of competition. Because of this, company owners will continue to see this as an opportune time to obtain liquidity.
This bodes well for HBM, as we are actively searching for both platform and add-on acquisitions. We have spent the past couple of years building our infrastructure to be able to review deals expediently as well as integrate them into our company. Both Schafer Industries and Aerofil Technology are good examples of HBM’s process and overall ability to close quickly on a deal.
Ryan’s contact information is as follows:
Director, Deal Origination
T: (314) 376-2540