Finalist | Deal: Less than $25M
- Company: Tillerman & Co. LLC (acquired Jackson Flexible Products Inc.)
- Top executives: Remos Lenio, Philip Blanchard
- Annual sales: $4.2 million (Jackson Flexible Products Inc.)
- Total employees: 30
- Business description: Jackson Flexible Products manufactures specially formulated rubber parts for the aerospace industry. Tillerman & Co. is a merchant and investment bank focused on acquiring closely-held companies in the manufacturing, agribusiness and other sectors and operating them with a long time horizon.
- Advisers: Barnes & Thornburg LLP (legal); Comerica Bank (senior lender); Willis & Jurasek PC (accountant)
When Remos Lenio and Philip Blanchard set out to acquire their first company under a newly formed firm, the partners knew they had one chance to confirm what they saw as an unexplored market niche.
Tillerman & Co. LLC, a Grand Rapids-based merchant banking and investment banking firm, formed in late 2015 with the intent of investing in small, closely-held companies valued between $3 million and $75 million in industries ranging from manufacturing to agribusiness, among others.
The firm’s first acquisition of Jackson Flexible Products Inc., a manufacturer of specialty rubber components for the aerospace industry based in Jackson, Mich., fit its criteria perfectly. In particular, Tillerman was searching for a company that it could grow in place by bringing on sophisticated business and production management strategies.
“We view this as a diamond in the rough,” Blanchard said. “It was very profitable, it was a unique business, but their idea of sales and marketing was answering the telephone. They had really great growth potential, good margins, really sticky business and a really good management team.”
For its acquisition of Jackson Flexible Products, Tillerman was named as the finalist in the 2016 MiBiz M&A Deals and Dealmakers of the Year Awards in the category for transactions valued at less than $25 million.
Despite positive and sustainable cash flow, Jackson Flexible Products had its share of challenges, ranging from poor financial tracking that left customer checks sitting in drawers for weeks at a time to an unused enterprise resource planning (ERP) system and inaccurate quoting processes.
“It’s no fault of theirs — they’d just never been exposed to (the systems),” Lenio said.
Since closing the deal for Jackson Flexible Products in March 2016, Tillerman invested in and implemented an ERP system, quality modules and production management technology. The firm also hired a new finance and sales person.
Tillerman’s operational philosophy, which Blanchard describes as “patient capital,” fit with the wishes of Jackson Flexible Products’ ownership.
Ronald Jakubas, along with his wife, Helen, began the company in 1969. As Jakubas reached retirement age, he wanted to pass the company to a firm that would maintain its operation in Jackson without cutting employees or moving it out of the area.
Tillerman hopes to continue to carve a niche for itself among companies such as Jackson Flexible Products that wish to maintain their founder’s legacy.
“We learned that there are baby boomers who have been making good money during their careers and aren’t interested in maximizing the value out the door,” Lenio said. “The owner’s goal was to position this company so that the employees would continue to have jobs and good growth and support the Jackson community.
While the Jackson Flexible Products deal presented Tillerman with an ideal opportunity for its first acquisition, the firm had to work closely with lender Comerica Bank to finance the transaction.
At first, banks were leery of financing a deal that was based largely on cash flow, since the manufacturer’s assets were largely outdated, Blanchard said.
“It was hard for a lot of banks to do,” he said. “I think we’ve softened several banks as to their willingness to look at a cash flow deal.”
Beyond funding, Tillerman also struggled with advisers on the sell side who weren’t well versed in the transaction process.
Jackson Flexible Products used an unnamed local attorney who specialized in real estate and ended up holding up the transaction by four months and cost Tillerman $35,000 to clear up before taking the deal over the finish line.
“Our biggest challenge was dealing with seller advisers that weren’t competent and that’s more common than not,” Blanchard said. “We had to keep everyone online and keep pulling them along delay after delay.”
Going forward, Tillerman plans to continue to hunt for add-on deals that will complement Jackson Flexible Products’ operations. The firm has several more undisclosed deals in the pipeline, according to the partners.
“We understand that at some point this is going to take more capital and add-on investment,” Blanchard said. “We don’t have a seven-year liquidity horizon. If we own this thing for 20 years, great.” ν