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Sunday, 06 July 2014 22:00

PE firms invested $6.7B in 50 Michigan companies

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Private equity investors put $6.7 billion into 50 Michigan-based companies last year, according to an annual report issued in late June by the Washington, D.C-based Private Equity Growth Capital Council (PEGCC).

The number of Michigan companies receiving private equity investments in 2013 kept pace with the prior year, but the total dollar value of firms’ investments declined from the $9.6 billion they pledged in 2012, a year in which three major investments inflated the state’s numbers.

Investments in the state last year were fairly diverse, both geographically and by economic sector, and private equity investing remains in good shape in Michigan, said Bronwyn Bailey, vice president of research at PEGCC.

“You’re doing pretty well,” said Bailey, noting that Michigan made the council’s top 20 states for private equity investments for the second year in a row. She expects Michigan to remain in the top 20 in the years ahead, although there are not a “plethora” of funds that are based in the state. Much of the investment comes from outside funds, she said.

According to a PEGCC analysis of Pitchbook data, the largest single deal last year was a $250 million investment by San Francisco-based Golden State Capital for Humanetics Innovative Solutions Inc. in Plymouth, a designer and maker of high-tech crash test dummies. That fell well short of the largest investment in 2012 when Veritas Capital bought out Ann Arbor-based Truven Health Analytics Inc. for $1.25 billion.

The top three investments last year totaled $366 million, compared to $2.82 billion in 2012, according to a PEGCC analysis of Pitchbook data.

As the state’s economy improved the last few years, private equity firms in Michigan have seen an uptick in investment prospects, according to executives at two firms.

“Our sense is that the number of companies that we’re looking at in the state of Michigan has grown exponentially,” said Martin Stein, founder and managing director of Blackford Capital in Grand Rapids.

Stein relocated Blackford Capital to Grand Rapids from California and formed the Michigan Prosperity Fund that seeks to acquire mature, profitable manufacturing companies in the state that have high growth opportunity and whose owners are seeking to sell.

He estimates that in 2012, the Michigan Prosperity Fund looked at 50 companies that fit its criteria. That doubled in 2013 and Stein expects it to double again in 2014 to about 200 companies. The firm gets “up close and personal” with three to four dozen investment prospects each year, four times the number of a few years ago, Stein said.

Part of the increase in investment prospects comes from a greater market presence and more awareness of Blackford Capital compared to a few years ago. Also working in Blackford Capital’s favor is that some of the baby boomer business owners are now looking to sell their companies and retire within a few years, generating opportunity for buyers and investors.

“Every day, every business owner gets older,” Stein said.

A few years ago, business owners who wanted to sell often could not get their asking price. Today, after a couple of good years amid the state’s economic recovery, sellers are back in the market and seeking buyers, Stein said.

“There is not a shortage of businesses in which to invest,” he said.

Blackford Capital’s Michigan Prosperity Fund has so far closed on three deals and a fourth is now in due diligence. When the fourth deal closes, the fund will have deployed about $35 million to $40 million of private equity capital and expects to round out at $50 million to $60 million, said Stein, who expects to form a subsequent, similar fund.

“We’re just seeing so many businesses that we do expect that we will be continuing on with this focus within the state of Michigan,” he said. “So far, the companies have done well and there have been good returns.”

For the Detroit-based Huron Capital Partners, the deal pipeline so far this year has been stronger than it was in 2013, said Gretchen Perkins, a partner at the firm that has $1.1 billion under management through four funds.

“Business is good. We are quite busy,” said Perkins, who expects the industry to maintain progress in Michigan. “Success breeds success, deals breed deals.”

Huron Capital, founded in 1999, presently holds 16 portfolio companies and has doubled in size in the last five years, a period that includes the “abominable” years of 2010-2011, Perkins said. Increased deal flow and the improved economy have raised the competition for good deals and have brought strategic buyers back into the market, Perkins said.

People have a greater awareness and understanding of private equity as an investment option these days, but the industry in Michigan still has a learning curve to overcome, she said.

“I think there is solid awareness of the private equity industry and that we are a capital source for companies in the state,” Perkins said. “That said, I think there is still education that is required for the benefit of the general public about the role that the private equity industry plays in creating revenue and job growth for Michigan companies.”

The public also needs to be educated about “the important role the industry plays in providing investment returns for thousands of Michigan employees whose pension funds invest in private equity funds,” Perkins said.

Nationally, private equity investing totaled $443.4 billion in 2,368 companies last year, which compares to $347.3 billion in 2,083 companies in 2012 and 1,702 investments for $144 billion in 2011, according to the PEGCC.

“We’ve recovered steadily from the recession years,” Bailey said.

 

Read 4500 times Last modified on Thursday, 03 July 2014 15:26

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