MiBiz 2017 M+A Deals & Dealmakers Awards Winner: Deal $25 million to $150 million
After experiencing explosive growth over the better part of a decade, executives at Muskegon-based KL Outdoor LLC knew they needed a partner to continue that pace of expansion into the years ahead.
The manufacturer of kayaks, paddle boats, portable sanitation units and other consumer products found that opportunity in New Water Capital LP, a private equity fund based in Boca Raton, Fla.
New Water Capital purchased KL Outdoor in late 2016 for an undisclosed amount. Since then, the company has continued to grow rapidly, executing a merger with a Montreal-based kayak manufacturer and moving to a new headquarters in downtown Muskegon.
“We were the leader in the industry but we wanted to expand the product line into consumer products and significantly continue the growth of the business that we had,” said Dave Harris, vice president at KL Outdoor. “We had doubled sales and doubled EBITDA for five years in a row and we wanted that to continue to happen. We could see it was going to take significant working capital to be able to do that.”
Among their considerations, Harris said he and his colleagues had to find a partner “who has the horsepower to keep this running.”
KL Outdoor LLC
Harris was joined by his three brothers in piloting the transaction, which helped KL Outdoor win the 2017 MiBiz M&A Deal of the Year Award in the category for transactions valued between $25 million and $150 million.
While the cash injection allowed KL Outdoor to add significant capabilities to its operation, the company was no stranger to private investment. After struggling financially in the years following the Great Recession, KL Outdoor was purchased by an undisclosed small investment firm owned by two reclusive Detroit-area investors.
Under the previous investors, KL Outdoor rapidly expanded, growing its annual production of watercraft from 28,000 boats in 2010 to 310,000 boats in 2016.
While KL benefited greatly under the firm, the investors were always transparent about their plans to make an exit in the future.
“It was expected from day one,” Harris said of the original investors’ plans to divest the business.
FINDING A MATCH
In many ways, New Water Capital’s purchase of KL Outdoor showcases the underpinnings of a classic private equity-driven transaction. KL Outdoor — once distressed and in financial receivership — had grown to the highest level possible under its family and investor ownership, and the company was primed for further growth.
“To get to where we want to take this company, I’m not sure there’s another way,” Harris said. “For us, private equity is the best way to get to that level.”
To help find the right match for KL Outdoor, the executive team hired Birmingham-based Amherst Partners LLC to broker a deal.
When it came to selecting a partner, KL Outdoor was specifically looking for a suitor that was well versed in manufacturing and consumer products and had familiarity with how to navigate big-box retail customers.
“We knew that the logical buyer would be someone that understood consumer products, the strength of a brand, and appreciated the big-box retailer, but also understood manufacturing,” said Chas Chandler, a partner with Amherst. “That’s a lot.”
Chandler noted that many of the buyers understood manufacturing but didn’t want to be involved with big-box retailers, or they were comfortable with the big-box retailers but didn’t have an appreciation for the “nuances” of manufacturing.
“At their heart, these were manufacturing guys who really knew how to sell consumer products into the big-box channels,” Chandler said of the Harris brothers’ leadership of KL Outdoor.
New Water Capital happend to fit that bill.
“It was pure alignment and excitement from New Water about where this company could go,” Chandler said. “That’s why they were selected. Yes, the price and the terms were good. But at the end of the day, one of the key issues was the vision and where the business was headed. They saw all that.”
FORGING A PATH FORWARD
With the backing of a large private equity firm behind them, KL Outdoor has already made great strides in growing the business. Just months after the transaction with New Water Capital, the PE firm brokered a merger between KL Outdoor and Montreal-based GSC Technologies Corp., a manufacturer of kayaks and other watercraft, and a main competitor.
Four months later, KL Outdoor announced it planned to establish a $9.2 million headquarters in downtown Muskegon.
New Water Capital also brought in a CEO, Chuck Smith, to assist in running the business.
Going forward, KL Outdoor executives have faith that the company will continue on its growth trajectory. On one hand, Harris said the company is scouting for more deals. He also noted that KL Outdoor was always intended to be a platform company to grow sales.
Organically, KL Outdoor plans to leverage its connections with big-box retailers to include new products into its operation.
“We do business with every conceivable big-box store or specialty retailer that you can think of,” Harris said. “When you think of the various products available in these stores, we really have an avenue to get our foot in the door with a lot of these products, not just the existing ones. I think the team is looking at continuing the (product) lines we have but we’ll give consideration to just about anything that utilizes our processes and that can get us competitively priced into these stores. I think there’s growth opportunities in a lot of areas.”
Harris said New Water hasn’t committed to hold the company for a specific period, and has held some companies in its portfolio for longer than the customary five-year cycle for many private equity-backed firms.
“They really look for the opportune time to get the company where they want,” Harris said. “I wouldn’t say that this is going to be spun in five years. It’s really what they think and when they think.”
In addition to driving further growth at the company, the New Water acquisition also gives the Harris brothers a way to take some chips off the table, and provides them an exit strategy in the coming years. The four brothers, each of them in their 60s, are contemplating their own plans for retirement in the coming years.
“They’ve been very good about saying, ‘You’re welcome to stay here and if you see a need to exit, we’re OK with that too,’” Harris said of New Wave Capital’s management team.