The broader reputation of private equity isn’t particularly rosy these days — even as those firms appear to become more and more ingrained in an ever-growing list of industries.
For the private investment firms making inroads in distribution, however, reputation can make all the difference: after all, what distributor founder or leader would want to see the business they’ve spent years or a lifetime building be put at risk?
Platte River Equity, a Denver private equity firm that invests in lower middle-market industrial businesses, says it wants to partner with the best companies in the most attractive markets, and that approach, as a result, requires earning the trust of those business’ founders and entrepreneurs — including recent deals for utility equipment and tool supplier Tallman Equipment Company and building automation distributor Building Controls & Solutions.
Peter Calamari and Mark Brown, managing directors at Platte River Equity, recently answered questions from ID about the firm’s latest deals, how it approaches potential acquisitions, and what the industrial M&A market looks like moving forward.
This interview has been lightly edited.
Industrial Distribution: How have the additions of Tallman and BCS gone?
Both Tallman and BCS have performed well out of the gates. We are still early on in our investment period with each but really pleased with how the companies have grown organically while at the same time absorbing all the foundation-building investments we are making – e.g. upgrading ERP systems, building out leadership bench, developing KPIs, establishing long term incentive plans – to set the stage for long-term, sustainable growth. It is a real credit to both teams that they have been able to do both at once.
ID: How does Platte River identify specific companies that it hopes to partner with or acquire?
About eight years ago, we transitioned from pursuing the industrial distribution and services opportunities that were coming in the door to seeking out companies we wanted to own in the subsectors we have identified as the most attractive to invest in. Because we’ve been in the industrial market for over 20 years, we have a good feel for which markets are growing fastest and have the most opportunities for prudent buy-and-build strategies. From there, our team is hitting the relevant trade shows, cultivating relationships with industry executives and calling on relevant companies. Tallman and BCS are both great examples of this thematic approach leading to successful investments.
ID: How does that conversation with company leaders typically begin?
We believe that the most important factors for company leaders when contemplating bringing in a new partner are working with someone who has a deep understanding of their business and industry, having a strong and shared vision for what can be accomplished with the right partner, and, most importantly, working with someone who will take care of their brand, legacy and employees in good times and bad. So we try to lead all conversations with how we can help them achieve those goals.
ID: What tend to be their main concerns, and how do you assuage them?
Most business owners worry about the sometimes-negative reputation of private equity around excessive leverage, mass firings and short-term thinking. We find our best way to combat these concerns is by offering up conversations with all our previous and current partners. We always remind our internal team that it has taken 20 years to build our firm’s reputation, but [would take] only one bad experience to ruin that. I think that causes us to always make sure we are doing the right thing by our partners.
ID: Is it a conscious decision to seek out founder- or entrepreneurial-led companies, or is that just the nature of the businesses on the block?
Our primary goal is to find the best companies in the most attractive industrial markets where we believe we can add value, but we have built our whole approach around earning the trust of founder- and entrepreneurial-built businesses specifically. All of these transactions require both sides to choose their partner, and we think we definitely stand out the most with these types of ownership groups because of our founder-first approach.
ID: Do company leaders tend to continue on with their businesses after you acquire them?
Yes. We want the leaders who share our vision for significant opportunity involved in the next step in the company’s journey. We are great listeners and want to design the partnership in a manner that works best for these leaders. Sometimes they want to move to a board seat immediately, sometimes they want to move to a role in the organization that more aligns with their passions, and sometimes they want to transition two to three years into the ownership period. We have been successful with all these approaches.
ID: How would you characterize the current M&A market for distributors and other industrial companies?
We are coming out of a challenging few years post-COVID. There was the rubber band effect in the distribution channel as OEMs, customers and distributors managed back to normalized supply chains. At the same time, outside of data centers and critical infrastructure, demand in industrial companies was fairly tepid. That said, today we are seeing strong performance across the board and, as a result, are optimistic that the M&A market will continue to increase for distributors and other industrial companies.
This article originally appeared in the September/October issue of Industrial Distribution magazine. Subscribe here and sign up for ID’s Today in Industrial Distribution daily newsletter here.
