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Published in Finance

Monroe Equity Partners raises $22M to pursue deals for corporate divestitures

BY Tuesday, October 04, 2022 08:54pm

GRAND RAPIDS — New capital commitments from investors give Monroe Equity Partners LLC the financial backing to pursue a market niche that’s projected to offer plenty of opportunity in the next few years.

The Grand Rapids-based investment firm targets deals for companies that a corporate owner wants to divest, spin off or carve out.

Nathan Vanderploeg LINKEDIN PHOTO

Backed by $22 million in recent capital commitments from strategic investors that it can tap on a deal-by-deal basis, Monroe Equity Partners looks for transactions in which a company is selling a line of business that’s “just not their top priority and they can’t spend time and focus and resources on it,” Managing Director Nathan Vanderploeg told MiBiz.

“We’re positioned to give them a way to help them monetize that asset or that line of business,” Vanderploeg said. “The people that we’ve been talking to are very interested about how we can help them monetize a line of business, provide liquidity and free up some cash that they can put toward their higher priorities, or spin something off that the corporate parent would retain some ownership of and could generate some upside for them.”

Vanderploeg and his partners started Monroe Equity Partners in 2016 as a platform company for entrepreneurial businesses. The firm presently holds three portfolio companies, including MessageWrap LLC, a Grand Rapids-based company that makes antimicrobial conveyor belts for store checkout lanes that carry advertising. The company was spun out years ago from Mol Belting Systems Inc., a Walker-based conveyor manufacturer.

Monroe Equity Partners recently has taken on a more public posture with the latest investor commitments, “and we’re on the hunt for deals,” Vanderploeg said. The pipeline of prospects has been “good,” he said.

“We’re getting a lot of meetings, particularly with the changes in the economic climate. Investment bankers have clients who are interested in exploring this kind of thing and we’re meeting directly with a lot of medium- and large-sized companies,” Vanderploeg said.

In addition to divestitures and spin offs, the investment firm will consider investing in business units that are distressed, underperforming, need a turnaround, or require a capital investment the present owner is unwilling to make.

The current economic trends and the pandemic that drove many corporations to refocus their growth strategies and concentrate on their core business lines could play well into Monroe Equity Partners’ strategy.

A survey that global consulting firm Deloitte conducted earlier this year found that corporate leaders “have done more divestiture transactions in the recent past and expect to do more in the future.” The pace of divestitures doubled from 2020 to 2021, and “we hear anecdotally from clients that they are actively weighing options for non-core operations and exploring diverse types of divestitures to unlock shareholder value,” according to Deloitte.

Among the respondents to the Deloitte survey, more than four in 10 said they planned to do three or more divestitures over the next 24 months, and 27 percent indicated they planned to do two divestitures. By comparison, less than one in five of the respondents to a Deloitte survey two years earlier indicated they planned two or more divestitures in the 24 months.

Half of the survey respondents said they had already completed three or more divestitures in 2022, versus 32 percent in 2020.

“It’s a good time to be doing this,” Vanderploeg said. “When there are economic headwinds like what we’re seeing, these medium and larger companies have to relentlessly prioritize what’s going to get them through and what’s going to drive their growth as we come out of the economic turbulence.”

Monroe Equity Partners targets several sectors and seeks to do deals nationally, with a focus on Michigan and the Midwest, he said. Investments target subsidiaries or business units that have $3 million to $100 million in annual revenue and up to $10 million in earnings before interest, taxes, depreciation, and amortization.

The firm focuses on “the lower end” of the market, or “the small carve-outs and the small spinoffs that aren’t big enough to be widely marketed by most investment banking processes,” Vanderploeg said.

“We’re more looking for the lines of business that are buried within a medium- to large-sized corporation that just aren’t the focus of the corporate parent or have more potential if somebody else owns them and tries to grow them,” said Vanderploeg, who has a background in management consulting.

Oftentimes, he worked with medium- and large-sized clients on business plans “that included figuring out what to do with a line of business that just wasn’t the top priority of the corporation.”

“It’s an angle-defined deal flow and something we have a track record of doing,” he said.

Read 2005 times Last modified on Tuesday, 04 October 2022 20:57
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