Significant exits were among the many successes Huron Capital enjoyed in 2017. The lower middle market firm completed 21 transactions, including 4 platforms and 14 add-ons and 3 exits. Huron also raised a new fund and initiated a new investment capability to do non-control equity investments.
Based in Detroit, Huron is considered Michigan’s largest and most active private equity firm. Since the firm’s founding in 1999, it has made more than 140 investments and raised six funds totaling over $1.8 billion, including the $550 million fund raised in 2017.
“2017 was a hot M&A market,” explains managing partner Brian Demkowicz (pictured, second from left). “This was largely due to liquidity in the debt markets and deep cash reserves on the balance sheets of corporate buyers. The main challenge was keeping multiple buyers interested in the chase to buy one of our businesses as long as possible, and perhaps to the point of signing binding purchase agreements in a limited time window. The second challenge was avoiding leakage in the negotiated price, prior to the closing and from post-closing price adjustments. Additionally, with a strong market for selling, some buyers assume that properties will go for high multiples and require the buyers to accept weaker long-term returns on their investments, leading part of the buyer pool to simply withdraw without understanding whether buyer demand was actually present. Lastly, with strong valuations, sellers are challenged to make sure the operating company performs well up to and through the closing date. Any sign of weakness can open the seller to possibly renegotiation efforts.”
In 2017, the firm exited a trio of companies: the Olon Group, a manufacturer of molding and drawers, sold to the Miller Group, an Ontario-based family office investor; LeadingResponse, a provider of customer acquisition services, sold to ICV Partners, a New York-based private equity firm; and Systems Inc., a manufacturer of loading dock leveling equipment, sold to the Chamberlain Group, corporate parent company to LiftMaster, Chamberlain, Merlin and Grifco.
Other initiatives included deploying a new investment strategy, called Flex Equity initiative, which expanded the firm’s strategies to include non-control equity. The initiative utilizes the company’s existing infrastructure, operational resources and investment processes, while capitalizing on attractive non-control opportunities being sourced through the firm’s proprietary value-sourcing model. The Flex Equity team closed its first investment in July 2017, Stay Online, and sourced an expanded management team, including a CFO. The firm also grew its ExecFactor program, Huron Capital’s proprietary, executive-led strategic market entry program.
Looking ahead, says Demkowicz: “We expect a continuation of a generally very favorable market for exits in 2018. There continue to be ready buyers, both financial and strategic, with abundant liquidity for acquisitions, along with relatively inexpensive financing (even if interest rates creep up a bit). We are optimistic about another strong year of M&A activity.”