Case Study

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.

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.”

Over the past 17 years, Huron Capital has raised more than $1.1 billion in capital through four committed private equity funds. To date, the firm has invested in 107 companies that employ 11,000 people in the U.S. and Canada. Its investments target companies in the lower middle market — those with less than $100 million in annual revenue and less than $20 million in profitability, as stated by EBITDA (earnings before interest, taxes, depreciation, andamortization).

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.


Chlodney joined Valentus as an operating partner and CEO of Valentus in 2014, bringing with him John Ragazzini, former CFO at Spraylat, who stepped into the same position.

“(Huron Capital) has a really closely-knit (group) of people who have had success over the years in doing what we want to do here. For me, that’s the formula for success,” Chlodney says. “In many cases, private equity firms get a bad rap as slash-and-burn. That’s not the case with Huron. I studied them very carefully; they’re an honorable and ethical company, they take care of their employees, and they want to build companies up and make them as valuable as possible. That’s what attracted me to Huron.”

The chance to help build a regional, lower middle market company into an enterprise with national reach was a challenge that Bob Taylor, a Valentus board member and former president and CEO of the decorative coatings division of Akzo Nobel NV, couldn’t resist.

“It excites me. It got me out of retirement to bring 40-plus years of expertise to the table,” Taylor says. ‘When Huron Capital brought us on, our job was to write a white paper, or a high-level strategy that named the sectors we wanted to invest in.

“We didn’t want to go after the coatings industry; it’s too broad and there are too many niches. One of the primary markets we looked at is branded products for the commercial wood flooring industry. That’s large, fragmented, profitable, and they’re not serviced or underserviced by the big coatings companies. And then you start looking at all the smaller coatings companies that play in the spaces you want to be in and, boom, up pops NPI. You see that they have a fundamental position in the market sectors we want to be in, they’re really good at what they do, and they’re profitable and growing, so you try to bring them into the fold.”

As Valentus grows, it becomes the business equivalent of a personal trainer, building on the companies’ existing strengths and growing the weak areas to prepare them for the marathon, Taylor says. In NPI’s case, that means drawing on the executive team’s talent to bulk up manufacturing efficiencies, purchasing and distribution strategies, and to upgrade the IT platform with a new enterprise resource planning system that can give granular detail on stock keeping units (SKUs), growth, and profitability by product.

“In addition to providing backup support for operations, financials, and sales and marketing, we will professionalize the business,” Chlodney says. “NPI had never done a strategic or a tactical plan. Not that they don’t know how; they’re entrepreneurs and they beat by a different drum. Now we’re sitting down and saying, OK, let’s map out the path we want to take to grow this business organically.”

While NPI met Huron Capital’s acquisition criteria for revenue and EBITDA, Beauregard calls the company fundamentally sound — yet, due to its entrepreneurial culture, it had become a “key person” business.

“We find companies that have personal relationships with buyers and customers, and these individuals become key people within the company,” Beauregard says. “Having a key person is good on one hand, but it’s limiting on the other because there’s only so much that individual can do. Our goal is to have entrepreneurs do only those things in which they’re exceptionally talented, and we’ll backfill for IT, manufacturing expertise, et cetera. They can get out in the field to promote their product and break through into new relationships. I don’t want them in the plant.”

The proposition of Valentus Specialty Chemicals is to locate and acquire companies that have brand recognition and regional strength, and build a national platform. The expansion plan will focus on reactive coatings technologies that apply to high-growth, niche market segments that aren’t targeted by large competitors. Products that benefit from these technologies range from pipelines to lawn mowers to hockey sticks.

“It’s not buying a bunch of little acquisitions and keeping them all individualized,” Taylor says. “You obviously want to keep all the brand identity and the know-how and the customer loyalty, but behind the scenes you’re saying, How can we take these acquisitions and truly turn them into a much larger, medium-size company — something the big companies don’t have time to do? You end up building a much larger platform that’s synergized, and down the road would be of clear interest to the big strategic players.”

As part of its internal due diligence, Chlodney’s team studied more than 100 potential add-ons to the Valentus platform; about a dozen are currently on the short list.

Beauregard says Huron Capital’s exit strategy varies between five and seven years, but it’s flexible. For example, Quest Specialty Chemicals existed for 13 years under the Huron Capital umbrella before being spun off to larger global corporations. Whatever the timing, Huron Capital personnel say there’s a natural break point when companies can no longer grow on their own.

“When companies become institutionalized and reach about $250 million in revenue and $30 million in EBITDA, they tend to outgrow the resources that we have,” Beauregard says. “When they get to that point we expect them to have grown earnings, paid down debt, and created a business profile that’s much more attractive to different kinds of investors than (what they had) when they were really small.

“When these three variables come together at one time, you create an environment where you can really generate some significant equity gain. We target a 25 percent compounded annual return in our base case, which is approximately three times our equity investment, and we’ve generated those kinds of outcomes across our exited transactions.”

In addition, Huron Capital plans to expand its business in less-than-majority positions in companies that want access to its resources but aren’t ready to give up so much control. It also uses its Detroit headquarters in the historic Guardian Building as a way to recruit and retain workers.

Beauregard says 25 percent of its employees walk to work. “I was in Houston last November and some people asked me where we’re based,” he says. “I said Detroit, and they said, ‘That’s (a) cool city now’. People used to say, ‘I’m sorry.’ It’s become a lot easier for us to recruit talent. I’m really proud that we’re based in Detroit and the community that we’re part of here.”

David J. Brophy, a finance professor and director of the Office for the Study of Private Equity at the University of Michigan’s Ross School of Business in Ann Arbor, says Huron Capital’s ExecFactor platform serves as a model for other private equity firms to emulate.

“It’s what we always thought private equity firms were supposed to do, but they has raised it to an art form and I think they’re leading the way, just as Arboretum Ventures in Ann Arbor and BioStar Ventures in Petoskey are leading in the venture capital (sector) in medical services and devices (respectfully),” Brophy says. “What I like about it is this is a way to bring executives into the mix to create a core platform where you bring add-on companies to build an organization of substance and size.”


Huron Capital Partners, Detroit

Managing Partner: Brian Demkowics

Business: Private Equity

Employees: 29

Revenue: Raised $1.1B in capital across four funds

Founded: 1999