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Monday, 20 February 2012 06:34

Blackford Capital raising new equity fund for in-state acquisitions

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GRAND RAPIDS — More than a year after moving his private equity firm to his home state, Martin Stein has begun forming a new investment fund to target Michigan-based companies for acquisition.

Grand Rapids-based Blackford Capital’s new Michigan Equity Investment Fund aims to raise $10 million to $20 million from investors over the next year. The fund will invest in mature manufacturing, distribution and business services companies that “have a history of profits,” a potential for growth and whose ownership wishes to sell.

Martin Stein“We’re looking for businesses that have been around for a long period of time, have weathered several economic cycles, and are looking to grow and have some sort of ownership transition,” said Stein, Blackford Capital’s founder and managing director.

Blackford Capital’s own research shows that an estimated 300 to 500 companies in Michigan fit its acquisition criteria. The firm leverages its available capital with some form of debt to finance deals, Stein said.

In forming the new fund, Stein wants to provide a vehicle for local investors to keep their money local. Outside investors putting money into Michigan-based companies means the equity essentially leaves the state when the company is eventually sold, Stein said.

“We are literally exporting our capital outside of the state of Michigan,” he said. “We’re taking our innovation, the intellectual property, that talent and the hard work and all of that, out of the state.”

The fund’s formation comes as Michigan’s economy rebounds.

Sri Sundaram, chairman of the economics department at Grand Valley State University, hopes the Blackford Capital move can spark further efforts to improve the access to capital in Michigan. Sundaram co-authored a study a few years ago that detailed the need for more capital across the spectrum – from startup companies to well-established businesses seeking to move to the next stage of life.

The Michigan Equity Investment Fund compliments efforts such as the formation a year ago of the Grand Rapids venture capital fund Michigan Accelerator Fund I and other work to increase the availability of capital in Michigan, Sundaram said.

“Hopefully, this will promote more private equity and even stir seed capital and angel investing and other things more and more to come into West Michigan,” he said.

Key to that goal is to spur more investment activity from Michigan-based investors “to keep that capital here when there’s an exit so it can be re-invested back into Michigan again, and that way it becomes helpful,” Sundaram said.

An Ada native, Stein started Blackford Capital in 2000 in Chicago. He soon moved to Irvine, Calif., and then relocated the firm in late 2010 to Grand Rapids to have closer proximity to the nation’s Midwest manufacturing base that it targets for acquisitions.

Stein hopes to raise funding for Michigan Equity Investment Fund from 50 individual investors. He anticipates the fund will acquire five to seven companies over three years, paving the way for the formation of subsequent and “substantially larger” funds.

Citing data that show most private equity investments in Michigan-based companies come from out- of-state firms, Stein started thinking about the new fund following a December conference at GVSU to encourage local investors to invest locally.

“We, as a firm, had not created opportunities for West Michigan investors to invest in local companies on a local basis,” Stein said.

Private equity firms in the U.S. own 336 companies that are based in Michigan. Data from an industry database indicates 87 percent of those equity firms are based outside of Michigan.

Blackford Capital typically holds companies for four to seven years. The firm made two acquisitions in 2011 and presently has six companies in its portfolio, five of which grew sales last year. It plans to grow to nine portfolio companies during 2012.

Deal sourcing for 2011 was the highest ever for the firm in terms of interest, site visits and letters of intent. Stein wants to build the momentum this year.
“We’re looking for 2012 to be our biggest year ever,” he said.

Read 3202 times Last modified on Thursday, 04 October 2012 00:30

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