Private Equity Manufacturing

October 25, 2008

Private Equity Manufacturing

Private Equity Investment in the Manufacturing Industry

Manufacturing companies often require private equity investment to stay competitive and expand their businesses. Manufacturers need capital for many reasons such as to purchase new equipment, expand into new markets, research and development and growth initiatives. The credit crunch has limited the ability of mid-market manufacturers to borrow capital, leading many manufacturing firms to look for private equity.

Benefits of Private Equity Investment in Manufacturing Firms

There are several benefits for manufacturing firms seeking out private equity:

  • Adding a Strategic Planning Partner: Mid-market private equity firms often become involved with the manufacturer through a strategic planning partnership. A private equity firm may use its resources to help the manufacturing firm. For example, by adding an experienced board of directors to advise the manufacturer.
  • Long-Term Strategy: A big benefit of private equity, especially relevant for manufacturing firms, is the focus on creating a long-term strategy. Public investors tend to have less patience for long-term results. A public company’s growth is measured quarterly while a private equity backed-company has more flexibility to make more profitable long-term decisions.
  • Global Expansion: Globalization has become increasingly important over recent years, especially for manufacturing firms trying to stay competitive. Private equity firms can provide the resources and expertise to help firms expand into new markets.
  • Increase Efficiency: Private equity firms may increase efficiency in manufacturing firms by assessing a firm’s business model and making improvements. Private equity firms add a new perspective on the current market opportunities and suggest adjustments that will increase returns for the company and the private investors. A private equity firm’s success is tied to the success of its investments so it is in their interest to improve the efficiency of the company through structural and management changes.

How Private Equity Firms Have Increased Earnings

Oliver Products Co., manufacturer of food and medical packaging products, partnered with Milwaukee-based private equity firm Mason Wells in May of 2007. After just one year, the company has been able to increase their revenue nearly 10%. Why? The partnership gave the management team the confidence and sense of empowerment it needed to move forward with strategic growth plans that had been on hold due to the economic outlook and the company’s understandably cautious approach.

The influx of cash enabled Oliver Products to purchase new equipment and open an office in China. In addition, the company relocated its operations in the Netherlands to a larger facility, and R&D efforts have significantly ramped up to develop new products. Lean manufacturing principals were implemented throughout the organization, leading to improved production efficiency in the manufacturing processes.

As is typical in PE investments such as this, Mason Wells obtained a majority ownership position, with the balance of equity held by management. While the PE firm’s leaders serve as advisors on the strategic direction of the business and serve as board members, the company was able to remain independent and the management team steers decision making and oversees day-to-day operations. – Industry Week article

Tags: Private Equity Manufacturing, Private Equity, Private Equity Manufacturing Industry, Manufacturing and Private Equity, Private Equity Investment in the Manufacturing Industry, Mid-market manufacturing

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