Published in Manufacturing

Aiming Small? Orchard Creek Capital’s deal for Classic Die signals downmarket trend for private equity firm

BY Sunday, November 25, 2018 09:14pm

GRAND RAPIDS — For its first acquisition, Northville-based Orchard Creek Capital LLC targeted an investment in an established, family-owned manufacturing company.

The recently-formed private equity firm found its ideal target in Classic Die Holdings Inc. The 40-year-old Grand Rapids-based plastic injection molder offers full-service mold manufacturing, including mold design, prototyping and construction. 

Jon Carlson COURTESY PHOTO

According to Orchard Creek Capital President Jon Carlson, the acquisition of Classic Die was an opportunity for his firm to purchase a company in a “dynamic, growing” industry. 

“We think they provide a lot of capability and a concentration to take care of customers efficiently and effectively,” Carlson said of smaller manufacturing companies. “The thing that attracts us most was (Classic Die’s) established workforce that works very well together as a team. They are a seasoned workforce, and we were really impressed with their technical skills and the customer base they are able to support.”

By acquiring Classic Die, Orchard Creek Capital is following a similar path that other private equity firms have taken in recent months by focusing its investment strategy on small manufacturers. For years, those companies never attracted much interest from private equity funds. 

According to John Pollock, managing partner of Grand Rapids-based LV2 Equity Partners LLC, private equity firms have focused more and more on deals involving smaller companies as they seek to deploy their capital in a highly competitive market. 

LV2 Equity Partners typically invests in manufacturers in the lower end of the middle market based primarily in the Midwest. 

“Without question, private equity dollars are moving downstream,” Pollock said. “There is a lot of money out there chasing less deal flow in the traditional marketplace.”

In part, Pollock thinks private equity firms are acquiring smaller companies to “complement portfolios” and build out their platforms. 

“In a time when valuation is pretty high for companies, it’s often more advantageous for a business to buy smaller companies,” Pollock said. “(For the) sophisticated buyer, there is more value that you can add to a smaller company.”

Orchard Creek Capital includes eight individual investors based primarily in Michigan, Carlson said. The firm plans to target mostly manufacturers with revenues in the $2 million to $20 million range that have strong profit margins and operate in growing industries. The company also says its acquisition strategy focuses on a longer investment horizon than most typical private equity firms. 

Classic Die employs 25 people and creates molds for multiple industries, including medical, automotive, home appliances and furniture. The company has five presses with a capacity of up to 700 tons, which provide quality assurance and quick turnaround, according to a statement. Its facility is located at 610 Plymouth Ave. NE in Grand Rapids. 

West Michigan was an ideal spot to target a company because of the amount of talent in the region, Carlson said. As an investment strategy, Orchard Creek plans to target similarly-sized companies across the United States, not just in the West Michigan area, he added. 

“We are very focused on any technological opportunities, specifically with regard to automation,” Carlson said. “It has a lot of synergy with mold making — a lot of that (industry uses) automation, end-of-arm tooling, that sort of thing.”

Dealmaking activity

Overall, M&A activity among private equity firms for smaller-sized companies “slackened” so far in 2018, according to a report in Pitchbook.com, which noted deals smaller than $25 million were down compared to 2017. 

However, those deals still made up almost 40 percent of the overall M&A market, according to Pitchbook. 

Pollock at LV2 thinks traditional private equity firms are “more willing to look at smaller-sized entities than they had been traditionally.”

“It doesn’t mean there is more competition, but it definitely gives sellers more options,” Pollock  said. “There is a lot of deal value in smaller companies.” 

Elsewhere, Grand Rapids-based Auxo Investment Partners has taken a similar investment strategy with small, family-owned manufacturers. For example, the firm acquired five small manufacturing companies in the last 14 months. Most recently, Auxo closed a deal to acquire Warren, Mich.-based Prestige Stamping Inc. in October. 

According to Managing Partner Jeff Helminski, companies like Prestige fit the ideal mold for Auxo’s acquisition strategy. Auxo is identifying dynamic, “small family-owned businesses” that could grow into a “much larger, more scalable business.”

“For us, it starts with a good small company that knows how to do what they do really well that hasn’t evolved or developed themselves into a scalable platform yet,” Helminski told MiBiz for a prior report. “Our approach is pretty unique, and we really pride ourselves on doing business the right way, the West Michigan way, if you will.” 

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