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Sunday, 27 September 2015 19:02

Q&A: Charles ‘Chip’ McClure, Managing Partner, Michigan Capital Partners LL

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Chip McClure Chip McClure COURTESY PHOTO

As managing partner of Jackson-based private equity firm Michigan Capital Partners LLC, Charles “Chip” McClure primarily focuses on investing in global Tier 2 and Tier 3 automotive suppliers. As automotive suppliers look to meet production figures that are projected to grow through 2020, McClure sees more opportunity for M&A among companies in West Michigan. McClure, a veteran of the auto industry, recently presented at the Association for Corporate Growth Western Michigan chapter’s breakfast program meeting on Sept. 23. He spoke with MiBiz about M&A in the region and the overall state of the automotive industry.

How has the pace of deals for suppliers in West Michigan stacked up against other parts of the country?

There have been a large number of (deals) in the automotive arena, primarily because it’s a strong market at this point. But a lot of that is in the Tier 1 space.

What about companies further down the supply chain?

What you are seeing is a lack of M&A activity in the Tier 2 and Tier 3 space … but my view is that there is no shortage of interesting investments or interested investors. There are a number of them out there. I think some companies are sitting around asking themselves if they want to go through another round like 2008 and 2009. But having said that, I think there is a lot of opportunity in the Tier 2 and Tier 3 space and we’re seeing regular interest there.

What do you think is holding down deals for Tier 2 and Tier 3 automotive suppliers?

Most of the private equity firms tend to be very industry agnostic, geographic agnostic and there are a fair number that don’t want to invest in automotive. Part of it is just finding investors that have that interest in automotive. Whether in Michigan or elsewhere, automotive is a cyclical business.

That’s on the private equity side. What about strategic acquisitions?

There is no question that there are those kinds of opportunities as you look to make one plus one go together to be greater than two. We will see some of that, and part of that, I think, is being driven by those that understand the automotive space.

How do you suggest smaller suppliers attract investors in the event they want to sell?

Everyone talks global, but you don’t have to be global for global’s sake. But you have to be of the size so that the Tier 1s and OEMs will place value in putting business with these companies. So size becomes important. Scale then becomes important to make sure you can invest in manufacturing either directly or through partnerships.

In several deals MiBiz has covered, experts have cited high multiples as a possible deterrent to deals. What are you seeing?

It really depends on the deals. If you look at the Tier 1s, you are seeing (higher multiples), but it really comes down to what business and customer base you have. It’s really going to come down to what the business looks like for that industry.

Is there any specific sector of automotive production that you see being more attractive for deal activity?

The biggest areas we were short on in ’08 and ’09 were (in) the forming vertical — forging, die casting, stamping and injection molding. There has clearly been a need for that, and I see great opportunities by putting some (companies) together that way. Machining is a second one. Tool and die is a third one. Another is services — any kind of services that a Tier 2 or Tier 3 can provide to a Tier 1 will help them at this point.

Moving on to the production side, there’s been a well-documented shift to the southern U.S. states and Mexico. How can West Michigan remain competitive, especially with lower labor costs down south?

I don’t just chase low labor. For most of the products we’re looking at, labor is usually less than 10 percent. I often talk about the total cost of manufacturing. Twenty-two percent of vehicles are still produced here in Michigan. We can be competitive. You just need to recognize that it’s not just labor cost, it’s the total cost of manufacturing. When we look to invest in companies, you have to make sure you’re investing in companies in the right space, in flexible and capable manufacturing to provide the products on a cost-competitive basis no matter where they go.

What’s the major headwind that automotive suppliers face going forward?

The biggest thing I’ve seen on that is making sure the suppliers have access to capital. It’s not just financial capital, but more of it is human capital. The human capital is probably the thing that has prevented them from growing.

Have companies acted on the lessons they learned in the recession about the need to diversify their customer base to be able to survive future downturns?

A lot of these companies have maybe one or two customers, period. That’s because those are the ones they grew up with. I’ve seen concentration as high as 80-plus percent of their business with one customer. As important is making sure that you’re dealing with someone that is a decision-maker within the customer so that when you’re meeting with him or her, they’re able to put together a strategic view and you’re not just competing on price, but on total engineered capability. Again, this all comes back to knowledge of the industry and of the suppliers.

Interview conducted and condensed by John Wiegand. COURTESY PHOTO

Read 3438 times Last modified on Monday, 12 October 2015 12:44

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