Case Studies

Industrial Magnetics

Industrial Magnetics, Inc. (“IMI”) was acquired by River Associates in February 2012. IMI is a Boyne City, Michigan based designer and manufacturer of highly engineered customized and standard industrial magnets, including both permanent and electro magnets. The company also imports and distributes certain non‐custom magnetic products. IMI’s products are used to remove ferrous metal from processing lines in a variety of industries ranging from food processing plants to mining operations. The company also fabricates magnets for stabilizing products on conveying lines and lifting applications. IMI has a strong competitive position in its market with many long-standing customers and a history of industry-leading product innovation.

Why River Associates

IMI was looking for a partner and advisor for growth and to create a sustainable, lasting business. Although previously owned by a private equity firm, IMI management was given a strong vote in deciding to whom the company would be sold. Management thoroughly vetted potential partners including visiting the offices of several potential buyers. River distinguished itself through tenure, experience, and management style. Our strategy for creating value with this investment was to:

• Provide capital for facility and equipment upgrades
• Focus on further penetration at existing accounts
• Continue to identify and enter new end markets
• Pursue complementary add‐on acquisitions

Investing with Management

Early in the investment, River supported management’s successful implementation of a number of projects to reduce overall investment in inventory (both cost and stocking levels). We also facilitated an add-on acquisition search and helped the IMI management team refine its acquisition strategy.

In May 2014, IMI acquired Prater‐Sterling. Headquartered in Bolingbrook, Illinois, Prater‐Sterling develops and manufactures particle processing equipment (sifters, grinders, hammer mills, etc.) and control systems largely serving the food industry, a market also served by IMI. Prater- Sterling offered a complimentary set of products to IMI. A new General Manager was hired to replace the former owner/CEO of Prater. The IMI management team and new GM did an outstanding job of integrating the acquired businesses, implementing best-in-class systems and procedures and making significant upgrades to the facilities. In 2015, River approved a substantial plant expansion in Boyne City. The new addition, completed in 2016, provided the Company with new larger magnet manufacturing capabilities and a more efficient layout for the existing operation.

Outcome

During River’s investment period, the Boyne City facility footprint was increased by approximately 50%. The new addition offered larger capabilities and increased operational efficiency. In addition to plant growth, IMI completed the Prater-Sterling acquisition which provided growth through cross-selling opportunities.

Intelliteach

River Associates acquired the platform company, Cash Management Solutions (“CMS”), in October 2008 and completed a substantial add-on acquisition, Intelliteach, to which the combined entity was rebranded in February 2012.

The Company is a St. Louis based provider of outsourced help desk and revenue cycle management services to large law firms and accounting firms. The Company serves an impressive list of loyal blue chip clients, including many of the AmLaw 200 firms, and supports over 125,000 law firm employees in 50 countries. Intelliteach provides a menu of services including help desk, billing monitoring, client contract compliance, accounts receivable management, and various collection functions.

Why River Associates

CMS was majority owned by management and a small, independent financial sponsor. The sponsor wanted liquidity for the investment and management was seeking to partner with a new, larger financial sponsor for growth capital and strategic guidance. River was selected because of its long tenure of partnering with lower middle-market companies and its philosophy of providing day-to-day operational autonomy to company management teams. The transaction occurred during a notably difficult period for the global economy and River was still able to close on the investment as planned. River’s initial strategy for creating value with this investment was to:

• Increase the penetration in the Company’s existing market for the services that it offers
• Further penetrate existing customers with a broader suite of outsourced service offerings
• Pursue strategic add-on acquisitions

Investing with Management

With River’s guidance, Intelliteach made significant investments in management, infrastructure, and technology so as to enable it to support the organic growth opportunities within its existing markets.  The Company grew its senior management team from four to seven executives. Additionally, CMS’ acquisition of Intelliteach allowed it to expand its suite of services and achieve significant growth through cross-selling opportunities with each company’s customer base.

Outcome

During River’s hold period, and with the strategic add-on acquisition, the Company increased its client base from approximately 75 to approximately 240 legal and accounting firms.  The Company transformed from a single-facility St. Louis-based operation to a five-facility international operation and grew its employee base from 121 to 326.

Omega Environmental Technologies

River Associates acquired Omega Environmental Technologies (“Omega”) in January 2012. Based in Irving, TX, Omega is a global distributor of aftermarket automotive climate control components for a broad range of vehicles including automobiles and light trucks, heavy-duty trucks, and off-road equipment. Omega serves as a one-stop-shop and value added partner to customers in 85+ countries through an extensive product portfolio.

Why River Associates

The founder of Omega was looking for her first institutional partner to help assist the company and the management team with the next stage of growth and strategic planning. River differentiated itself through a combination of factors, including a comprehensive strategy development, a clear track record of growth with similar founder-owned businesses and a management style that was comfortable for the founder. Our initial investment strategy with Omega was to:

• Complete and professionalize the management team
• Continue to expand Omega’s branded product penetration in the U.S. market
• Re-emphasize the foreign market sales
• Expand the product line to include complementary products and take advantage of the Company’s vast distribution network
• Pursue strategic acquisitions that would strengthen the company’s market position

Investing with Management

In conjunction with the acquisition of Omega in January 2012, River identified an outside Board member from the automotive aftermarket industry who worked with the management team on many of the strategies above as well as specific tactical initiatives.  In December of 2012, Omega acquired Global Parts Distributors, LLC (“Global”) and Santech Industries, LLC (“Santech”) to become what we believe is one of the largest providers of aftermarket climate control products domestically as well as one of the largest global exporters. Upon completion of the strategic add-on, the outside board member also became the CEO of the Company and was instrumental in the hiring of other key managers at Omega, including a CFO, Controller and a VP of Sales & Marketing for the Omega/Santech division.

Outcome

During River’s ownership, Omega successfully implemented an Enterprise Resource Planning and warehouse management system that improved efficiency and productivity throughout the company. With the successful acquisition and integration of the Global and Santech brands and other key executive team hires, Omega’s management team and systems became one of the clear leaders in its industry and Omega became a leading provider of aftermarket climate control products worldwide. Because of the systems and platform capabilities installed during River’s ownership, the management team has been able to complete additional strategic acquisitions even after River’s exit.

ACTION FABRICATORS

River Associates (“River” or the “Firm”) acquired Action Fabricators (“Action” or the “Company”) in August 2015. Action is a Grand Rapids, MI based converter of adhesive and non-adhesive-backed tapes, foams, rubbers and other flexible materials for numerous end-market applications, including automotive, medical, electronics, security, appliance, and general industrial applications. Action provides the critical link between material science companies and end users by selecting, combining and converting the right flexible material for the right application. The Company is one of the nation’s largest 3M Preferred Converters and a strategic partner of many other material science companies. Action outpaced the growth in the broader industry for many years due to their strong technical capabilities, ability to focus on complex, higher-margin applications, deep customer relationships, and best in class management team.

Why River Associates

The founders and management team at Action were looking for an experienced partner who they believed could help the Company navigate through its next stage of growth, but who would also allow the Company to retain its unique culture and close family-type environment. They wanted a stable, experienced partner that they believed would utilize a value-added “hands-on” approach as opposed to an “in your face” operating partner model.

The business was already established but management was looking for a partner to support the Company’s anticipated organic growth and to help craft a strategy to pursue strategic acquisitions. River quickly believed there was inherent value in the business and was able to convey and articulate its plan and strategy for assisting Action. From the beginning of the process, multiple senior partners at River were actively engaged in each call and meeting with the management team, demonstrating a high degree of interest and conveying the overall importance of the transaction to the Firm. River’s primary strategy for this investment was to:

• Leverage the Company’s existing systems, management depth and general platform capabilities in an effort to grow the business both organically and by seeking add-on acquisitions that would help to significantly diversify the Company’s automotive market exposure
• Augment the management team and key personnel in certain areas to support the goal of continuing to grow the Company
• Expand plant capacity
• Increase margins and market share

Investing with management

River worked with management on immediately creating a detailed acquisition strategy focused on diversifying its end markets and expanding its product capabilities. Over the course of 2½ years, the Company completed three highly accretive add-on acquisitions in the medical products space that decreased the Company’s automotive exposure from approximately 75% in 2015 to approximately 50% in 2018. The Company’s exposure to medical end markets grew from the low single-digits to over 30%. We believe that these strategic add-on acquisitions and the resulting synergies, contributed to Action becoming a national platform with operations in Grand Rapids, MI, Gallatin, TN and El Paso, TX, which may help to further the long-term cross-sell and growth opportunities for the Company.

Apart from acquisitions, River and Action also completed a plant expansion that increased the footprint of its Michigan headquarters by approximately 50% and upgrades to the Gallatin, TN facility. River and the Company also made key capital equipment purchases, hired a V.P. of manufacturing and further bolstered the management team with several other key hires to increase the sales force at both Action and CSI (the largest add-on acquisition).

Outcome

River completed the primary focus of our original investment thesis after a 2½ year hold and determined alongside management that the timing was optimal to pursue an exit. Action was sold on February 26, 2018 to Boyd Corporation.

Double E

A study of how River works with sell-side investment bankers.

River Associates acquired Double E in May 2017.  Headquartered in West Bridgewater, MA with manufacturing also performed in Wisconsin and Italy, Double E is a leading designer, manufacturer and marketer of highly-engineered components for web converting applications.  Double E provides a comprehensive product line of web accessory component solutions to more than 7,000 customers in the paper, film, foil, corrugated, packaging, printing and non-woven end markets.  The company’s product lines include safety chucks, core chucks, core shafts, core plugs, fiberglass cores, rollers, shafted roll stands, core cutters and other related products.

Why River Associates

Double E was being sold by a well-respected middle market investment bank, Quarton International, as part of a divestiture from its then current financial sponsor partner.  From the initial review of the confidential information memorandum (CIM), River Associates identified Double E as a “River Deal”.  More specifically, River saw in Double E attractive business characteristics that were present in a number of River’s historical investments:  competitive market positions, customized and diverse product capabilities, margins that exhibited value-add, a diverse customer base, an experienced management team, a large addressable market and the potential to grow organically as well as via strategic add-on acquisitions.  As is customary when River views a new acquisition candidate as a possible fit, several senior and junior members of the firm made a comprehensive review of the CIM, immediately submitted initial questions to the investment banker that was followed by a call with the banker, initiated industry research/diligence and made outreaches to senior, mezzanine and unitranche lending partners.

After thoughtful consideration, River submitted an initial indication of interest and was one of a handful of potential buyers who were invited to meet the management team at an informal dinner that was followed by a meeting and plant tour the next day.  River realizes that the evaluation of a potential partner by management comes at every stage of the process, from the initial level of engagement to the level of preparation employed prior to the dinner and meeting, to the number of senior partners who attend the meeting and to the thoughtfulness of questions that are asked of management.  Understanding that managers and investment bankers sincerely appreciate potential buyers who show up informed and aware of initial interactions being a mutual evaluation, three of River’s five partners, along with other deal team members, attended the dinner having “done our homework” on the company, the industry and the management team.

Outcome

The process was competitive and, after submitting a more formal letter of intent, River was one of two private equity firms selected to proceed as potential buyers. This situation meant that both private equity firms would be asked to, among other things, complete all due diligence, solidify their financing packages, formulate employment and equity incentive plans for the management team and agree to final purchase agreement terms.  According to Double E CEO Tom Pranka, the key differentiators that set River apart included a compelling enterprise value for the company, a clear and convincing knowledge of the business, substantial completion of diligence at the time of submission of the letter of intent, a management team that viewed River favorably, senior partner involvement at all stages of the process, and the certainty of close in the eyes of the seller and their investment banker. River closed the acquisition in approximately 30 days from submission of the letter of intent and in approximately one week from being granted sole exclusivity.