MiBiz 2017 M+A Deals & Dealmakers Awards Finalist: Deal less than $25 million
The family-owned Middleville Tool & Die Co. found itself in a precarious position in the last couple of years leading up to December 2016.
As the second generation of the Middleton family hit retirement age, the company struggled to find the resources necessary to keep up with the growth opportunities in front of it. Meanwhile, the third generation of the family was active in working with the business from an engineering standpoint, but lacked the experience to marshall the company through what appeared to be a major inflection point in its more than five-decade history.
Middleville Tool, which had just invested a collective $6.5 million in bricks and mortar and equipment, brought in professional managers to run the business. However, it became clear to them that the company needed to find a partner that could help it scale up and be sustainable.
“We borrowed what we could, but it wasn’t enough,” said CEO Bill Blanton, part of the outside management team the company hired. “There just wasn’t enough bandwidth to get it done. There needed to be a partner. … We needed to get something that fit for our company.”
Middleville Tool & Die Co.
Before coming to Middleville, Blanton had worked in private equity, run manufacturing companies and served as a corporate adviser as part of the team at DWH LLC, a Grand Rapids-based management consulting and turnaround firm. Finding the right partner “was basically my job over the course of a several month period,” according to Blanton.
The impending transition for the company posed a number of challenges as Blanton courted various buyers, including family offices, private equity funds, and strategic firms.
“It was a $15 million company for a lot of years, and now all of the sudden you’re moving to being a $40-, $50-million company,” he said. “There’s a lot of blue sky that somebody’s buying into because you can’t look at a return from the past and say, ‘OK, that’s what the value of the company is.’ You’ve got all this new work laid in, all this equipment.”
On top of that, he needed to ensure the buyer would treat the Middleton family fairly in any transaction.
As it turns out, the Bayer family who owned Bayloff Stamped Products Detroit Inc. and several other companies in Southeast Michigan bought into the vision for the company and acquired a controlling equity interest. The founding Middleton family retained a 30-percent stake in the company after the transaction.
“The Bayers were owner-operators of businesses and wanted to expand and wanted to get into new markets and something different,” Blanton said.
For the deal, which closed at the end of 2016, Middleville Tool & Die was named a finalist in the 2017 MiBiz M&A Deal of the Year Awards.
Middleville Tool & Die’s growth was driven by the success of the company’s patented tubular stamping process, which it developed in 2003. The engineered solution took off in recent years among the company’s automotive industry clients, shifting Middleville away from its legacy as a tool and die maker, which now accounts for just a tenth of the business.
It’s not that the tool and die business went away, but rather that the company’s contract manufacturing business quickly accelerated, according to Blanton. The technology offered customers “the whole nine yards” of better cost, better yield of material and better quality, he said.
Despite Middleville’s investments in its building and new equipment, the company was unable to react fast enough to keep up with demand, Blanton said.
“I think that’s what happens sometimes when you grow and you grow too fast,” he said. “You have to kind of weigh that stuff all out and I think the opportunity was there and the family wanted to continue to go forward. We did what we could to try to make sure we did everything we could to utilize every resource we could before we went out and tapped into the equity market.”
Compounding the company’s financial situation was the long up-front lead time inherent in the automotive product cycle. Middleville needed to develop product prototypes that had to be validated by an OEM ahead of being awarded any business. Then, if the company was successful in getting the job, it needed to deploy capital for equipment and tooling 12 to 18 months before the part went into mass production, Blanton said.
Ultimately, the Bayer family understood the changing dynamics at Middleville “and wanted to be a part of the excitement of the organization. And for the Middletons, I think it was feeling comfortable that they were going to gain a partner,” he said.
As Middleville transitioned away from family ownership to a “more corporate feel” even as the two firms operate independently, it’s allowed the company to become more collaborative.
“In a family business, sometimes the family possesses all of the technology, all of the acumen, and they’re the ones making all the decisions,” Blanton said. “Now we’re in this enterprise value where it’s really not about that type of thing, it’s about what’s best for the company, how are we going to attract the best people, and what are the best practices. … This becomes much more sophisticated.”