Huron Capital Partners, a private equity firm in Detroit, has developed an acquisition platform that drives operational efficiencies through an in-house buy and build strategy.
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National Paint Industries is a privately held, middle market business based in North Brunswick, N.J. It produces specialty coatings used to seal and protect basketball courts, factory and office floors, and swimming pools. NPI sells its U.S.-made products throughout the country, but its strongest brand recognition and sales are along the Eastern Seaboard.
Under the leadership of Mike and Don Schnurr, whose father founded the company in 1959, NPI had grown at a respectable 5 percent each year and wanted to expand its presence in the market. Although it had robust sales, marketing, and product development capabilities, weak plant efficiency and distribution channels — along with a lack of available capital — were impeding the company’s growth.
Enter Huron Capital Partners, a private equity firm based in downtown Detroit which has built a portfolio of companies that specialize in business services, consumer goods and services, health care, and specialty manufacturing. Under Huron Capital’s so-called “ExecFactor” buy and build strategy, the firm establishes holding companies, or platforms, in industries ranging from used car remarketing to pediatric dentistry. It then adds smaller — often family-owned — companies with the needed capital, technical capabilities, geographic reach, or managerial talent to grow the platform.
Based on Huron Capital’s track record with specialty coatings — it had acquired the assets of a small Wisconsin company in 2004 that would eventually become Quest Specialty Chemicals, upping annual revenue from $22 million to $230 million by 2011 — the firm created the Valentus Specialty Chemicals platform in 2014. When Valentus went shopping for its first add-on to increase its share of the $22 billion U.S. coatings market, it discovered NPI. Following due diligence, Huron Capital acquired the company in December 2015.
“NPI has very strong market share in the northeast quadrant of the U.S. for wood floor coverings and cement sealants and coatings,” says Mike Beauregard, a co-founder and senior partner at Huron Capital. “They’re a strong regional player. They have several brands, but those brands (were) selling just a few million dollars each. When you add them all up it makes for a meaningful company, but they (were) underexposed nationally. (We will) create an environment where it can leverage itself to become multiples of its size.”
Don Schnurr, an NPI vice president and co-owner who stayed with the company to run sales and marketing, says Huron Capital’s investment expertise and proven record working with middle market firms helped seal the deal.
“We incorporated a management team and board of directors that will add value and help guide us in future growth,” he says. “Huron Capital brings capital that allows us to do acquisitions and purchase more equipment, automate, and adopt industry best practices that can further our sales and net income growth. We’re looking to double, triple, or quadruple the size of our company.”
The ExecFactor investment model has been a part of Huron Capital since its founding in 1999, although it was only officially trademarked in 2014. Schnurr says drawing on the knowledge of Huron Capital’s nearly 40 “on-call” industry veterans, the company works to formulate an investment thesis that supports a specific business platform.
The network of former colleagues, mentors, and even bosses is tasked with identifying an unserved or underserved market, developing a strategic plan (internally known as a strategic market entry initiative), and developing business acquisition targets. Once the enterprises have been acquired, Huron Capital’s leaders and their ExecFactor operating partners come on board, often merging with existing management teams to fill positions in C-suites and company boards.
“ExecFactor is a management-led investment thesis,” Beauregard says. “We spend more time assessing people than we do on financial engineering and structuring, which is the commodity. The value comes in developing strategic market entry initiatives led by industry veterans who match the right leadership with the right opportunities in the right company. That’s the link to getting to a positive outcome.”
Huron Capital says it prides itself on its Midwest attitudes and ethics, which support business growth and sustainability, and counter the sometimes-negative image of the private equity industry that partly damaged Mitt Romney’s 2012 presidential campaign.
“It’s extremely important to (assure) family-owned companies that their businesses (will) remain intact and can be part of a larger corporate umbrella where employees keep their jobs and plants stay open and additional capacity is created,” Beauregard says. “It’s very appealing for a family that’s built a business for generations and is indebted to their employees to (be able to) feel good about who they’re handing the keys over to, and to see the company continue to grow.”
Beauregard says Huron Capital typically takes a 75 percent ownership stake in a deal. For NPI, it allocated $50 million in equity for the company and subsequent add-ons. “With opportunities that are being considered now, I expect to invest three or four additional times in the next two years as we acquire other businesses and create this family of companies that are under the Valentus Specialty Chemical banner,” he says.
The idea for the Valentus platform arose from a conversation Huron Capital had with an operating partner who had served as CEO of the successful Quest Specialty Chemicals venture and who had a keen sense for where the business was heading.
“He said, ‘It’s time for us to consider investing in the reactive coatings market, and I have a great executive for that,’ ” Beauregard recalls. That candidate, Ray Chlodney, had been president and COO of Spraylat, a New York-based industrial powder and liquid coatings manufacturer that had increased sales from $60 million to $150 million during his tenure.