Facing a surge in demand for its products over the last couple of years, Rick Hughes saw a need to significantly expand his business.
Hughes’ Montague-based MasterTag Inc. exclusively supplies the horticulture industry with printed labels and tags for plants. As more people took to their gardens during the COVID-19 pandemic, sales at greenhouse and home and garden centers rose, which spelled high demand for tags.
“If you could take a tour of our factory, everyone kind of says, ‘Wow, how are you putting out so much in this space?’ It’s really because we’re crawling over each other,” said Hughes, a fourth-generation owner of MasterTag since 1978.
Top executives: Rick Hughes (president/owner); Jennifer Dyer (executive director - human resources, I.T., maintenance and quality); Julie Rice (executive director - operations); Randi Trygstad (executive director - sales and marketing)
Total Michigan employees:
Company description: Montague-based manufacturer of customized tags and labels for the horticulture industry. Labels and tags are used for both instructional and marketing purposes.
Advisers on the deal: Charter Capital Partners (financial) and Varnum LLP (legal)
Hughes, who has been instrumental in expanding the geography and product line of a business that originally started in 1949 by selling fishing bobbers, knew that the business was on the cusp of more expansion. Some of the more pressing needs include additional production space, automation technology to streamline various areas of production, and new technology to help the business stay on the cutting-edge of tag and label making.
“When you look at it, that’s around $10 million to $20 million of investment when I’m at this age probably, which isn’t the most prudent thing to do,” said Hughes, who is 65.
That realization led to the recent sale of MasterTag to California-based Avery Products Corp., which specializes in customized printing and label making. Avery Products is a subsidiary of Toronto-based corporation CCL Industries Inc., a global provider of specialty packaging and label making.
Both sides closed on the deal on Dec. 31, 2021, and terms of the deal were not disclosed. Hughes explained that he is staying with the company during the transition period as the company seeks a new president.
The sale of MasterTag was also selected as the manufacturing deal of the year for MiBiz’s 2022 M&A Deals & Dealmakers Awards.
Avery Products was a familiar name even before the sale of the company. Hughes said that Avery Products and CCL had been eyeing MasterTag for quite some time.
“They had called like every year for a number of years,” he said. “I just never answered the call. I took the name down, but I just wasn’t in position to sell.”
The name popped back on the radar when Hughes and the MasterTag team worked with Grand Rapids-based investment banking firm Charter Capital Partners to find a suitable buyer for the company with strong roots in Montague. The two parties worked to narrow down a list of potential buyers to around a half dozen.
Hughes conceded that he could have gotten more money for the company had he gone with a different buyer, but the hands-off approach to investing and growing niche printers by Avery Products and CCL was something that spoke to him.
“They basically start by saying they’ll never know as much about — in our case, the horticulture industry — as we do. Which is true,” Hughes said. “They tried very hard to learn a lot. But they say, ‘We don’t want to run your business. We’re here to invest in it and help you grow and support that with not just money but resources, technology and information sharing.’”
“That’s a pretty powerful combination, especially for a guy that wants to keep his business in Montague,” he added.
The Avery/CCL combination has sought out acquisitions of other niche printers. Around the same time it purchased MasterTag, it also acquired Tampa, Fla.-based Lodging Access Systems LLC, a privately held company that specializes in digitally printed and encoded RFID key cards, wristbands and key fobs for access control.
“A lot of strategic acquirers will fully integrate the business and processes. Avery does it completely different,” said Mark Streekstra, managing director at Charter Capital Partners, who served as adviser on the deal.
“For a family business in a small town, that’s a big deal. Hearing that and seeing how much focus was put on the people and the culture by Avery at the very beginning was a very good sign of things to come and ultimately ended up going through with the acquisition. So far, they’ve kept their word. It’s a really good outcome so far.”
Hughes said the way the pandemic roped more people into gardening — particularly millennials — was the reason for a surge in demand and for creating the ideal time to sell.
“Sales have been strong — if anything, we have been a bit capacity restrained,” he said. “So our market was certainly good and the acquisition market has kind of rebounded from the initial COVID shock. … We knew multiples were in a pretty good range.”
However, just as the pandemic skewed the market in MasterTag’s favor, it also scared off some potential buyers that were unsure whether the new trends on demand had any staying power.
“That’s certainly a risk, and some people didn’t even want to come to the table because they didn’t think it was sustainable,” Hughes said. “And nobody really knows.”