Recently it was announced that Platinum Group (Platinum) had acquired the assets of Nordquist Sign Company (Nordquist). Nordquist has designed, fabricated and serviced signage for businesses and institutions since 1904. Terms of the deal were not disclosed. Nordquist is located in Minneapolis and employs 16.
Several features of this deal caught my attention. First, it is a good example of a lower middle-market private equity deal. Even though the details of the transaction were not released, with only 16 “Busting the Myth that Private Equity Firms Only Invest in Billion Dollar Deals”)., it is safe to assume that Nordquist is a middle-market sized company. Many business owners are under the mistaken impression that equity firms only invest in very large, high-growth transactions. The reality is there are literally hundreds of equity firms that specialize in investing in middle-market companies just like Nordquist (for further details, see
Secondly, I think we can all agree that sign making is not the sexiest, most dynamic industry in the U.S. Obviously Platinum is investing in Nordquist to earn some form of a return on investment (ROI).
“We saw this as an excellent opportunity to invest and apply our turnaround expertise to return the company to a sound financial footing,” Tom Ahonen, managing partner of Platinum Group stated in the press release. “In the process, we’re saving jobs and taking a century-long legacy forward.”
The folks at Platinum obviously are thinking outside the box on this investment. Most investors would not be interested in turning around a sign manufacturing company that is 107 years old. But Platinum is expecting the sign industry to recover. By applying advanced business strategies and financial controls, they plan on turning this investment into a positive return.
Most interestingly, the owner of the company, Dick Nordquist, is being retained and is joining the board of directors of this new entity. Again, this is a common deal structure. It allows existing ownership to participate in a second liquidity event later, assuming that the deal was structured with Nordquist holding an equity position. This would hold true whether Platinum plans to use Nordquist as a platform company or as an add-on acquisition.
A platform company is an initial investment in an industry to which subsequentin that industry are “added on,” creating a much larger entity. Typically, at some later point in time – usually five to seven years – the larger entity is either taken public or sold, thus creating a second liquidity event.
The most important takeaway for you is that there are lots of equity firms that specialize in making investments in middle-market and even lower middle-market companies. Not all of them are turnaround specialists like Platinum, but the equity firms that thrive by making investments in the middle-market do so for strategic, long-term reasons. They tend to hold their investments longer than firms that do mega deals, and they also tend to make a number of add-on acquisitions over time to grow the platform.
And usually they operate with little fanfare and publicity. Chances are good that there may be an equity firm that is looking for deals in your industry right now. In fact, before you read this posting, how many of you had ever heard of Platinum Group? Not many I would guess. However, they have made 16 acquisitions in the past 17 years. I would say that they are pretty active in the middle-market.
Obviously, not every company is a viable target for an equity firm. But the only way you can determine this is to obtain the services of an M&A advisory firm who can guide you through the complex buyer search process.
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