Executing a Management Buyout


Company

Industry

Chromalox, Inc.

Industrials

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Executing a Management Buyout


Company: Chromalox, Inc.

Position: Industrials

Location: Pittsburgh, Pennsylvania

Date of Investment: March 2011

Exit Date: December 2012


Company Description
Chromalox is a leading global branded manufacturer of commercial and industrial electric heating products and solutions. Founded in 1918, Chromalox is an industry pioneer with a 90-year record of producing a broad range of electric heat and control products, including components, immersion heaters, heat trace cables, and heat transfer systems. Chromalox serves a diverse base of more than 60,000 customers including distributors, end users, OEMs, catalog houses, and system integrators.

Background
In 2001, a private equity firm acquired Chromalox from Emerson Electric in a carveout transaction. After several years of uneven performance, in 2007, a new CEO was hired to implement a strategic repositioning. Several years later, in 2012, Chromalox was put up for sale, and we worked on the transaction and made an offer. At the conclusion of an auction process, Chromalox agreed to be sold to a strategic buyer, but the deal subsequently fell apart. Due to our strong relationship with the investment bank managing the sale, the close rapport we had established with Chromalox’s CEO and team, and our record of following through on our commitments, Sentinel was given another opportunity. We moved very quickly to secure and close the transaction.

The Opportunity
To partner with Chromalox’s talented and committed management team and benefit from a resurgence in Chromalox’s endmarkets, which our due diligence led us to conclude was likely to accelerate, while continuing to execute management’s proven growth strategy of selling complete solutions, focusing on high margin products, and improving profitability by consolidating and optimizing operations.

Accomplishments
Built Strong Partnership with Management: Sentinel worked closely with the CEO to establish an incentive program to provide management with significant financial upside if Sentinel’s investment in Chromalox had a successful outcome. Management was energized to be working with us and to focus on generating substantial equity appreciation.

Accelerated International Growth Strategy: Sentinel worked with management to open a sales office in Germany and a facility in China to provide Chromalox better access to the fast-growing Asian market.

Outcome
Under Sentinel's ownership, Chromalox’s sales and profitability grew significantly. Having accomplished our investment objections, in December 2012, Sentinel sold Chromalox to another private equity firm in a successful transaction for Sentinel and our management partners. Our management partners continued to own a meaningful equity position and to run the business following the sale.



Case studies have been selected for illustrative purposes for management teams of midmarket companies considering a partnership with Sentinel and should not be considered an offer or solicitation of services or an actual or implied endorsement of Sentinel or any security, investment, or portfolio company. The portfolio companies highlighted are not representative of all current and prior investments of Sentinel. A list and description of investments since Sentinel’s inception is available on this website.

Cottman Transmission Systems, Inc.

Franchising; Consumer

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Executing a Management Buyout


Company: Cottman Transmission Systems, Inc.

Position: Franchising; Consumer

Location: Fort Washington, Pennsylvania

Date of Investment: August 1999

Exit Date: April 2004


Company Description
At the time of our purchase, Cottman was a franchisor of automotive transmission centers that repair, remanufacture and service transmissions. Cottman, the "Transmission Physician," opened its first transmission repair center on Cottman Avenue in Philadelphia in 1962, and when Sentinel sold the company, had approximately 400 centers in the United States and Canada.

Background
Sentinel acquired Cottman from its three owners who were seeking to (i) obtain liquidity for estate planning purposes, (ii) accommodate the desire of Cottman’s senior executives to remain with, continue to grow, and own a significant stake in the company, and (iii) include management in choosing the buyer with whom they shared a common strategic vision.

The Opportunity

  • To acquire the second largest and fastest growing automotive transmission repair system in the U.S.

  • To purchase a proven and well-established brand with strong market position that was poised to continue growing

  • To partner with a young and ambitious incumbent management team who had not yet established personal wealth

 

Accomplishments
Completed a Smooth Transition to Sentinel Ownership: Cottman was a 20-year-old business that had been actively managed by three owners who exited at closing. We worked closely with its newly-appointed CEO, who had been at Cottman for 10 years, to ensure a smooth transition from the founders.

Accelerated Growth Strategy: To position Cottman for accelerating its growth, Sentinel helped the new CEO recruit two experienced executives as COO and CFO to replace two of the founders who retired at the closing. We also assisted management to upgrade Cottman’s IT infrastructure and refine their strategic growth plan, which included greatly accelerating growth by focusing on select underdeveloped markets in which leading competitors had not yet firmly established themselves.

Outcome
During Sentinel's 4½ year ownership, Cottman doubled the number of its franchisees and expanded into several new geographical regions in which it successfully established fortress market positions. Sales grew significantly and profitability more than doubled. In April 2004, Sentinel sold Cottman in a second management buyout to financial services firm American Capital Strategies. Under leadership of the team Sentinel had backed, Cottman continued to grow and subsequently acquired AAMCO, its largest competitor, to become the U.S. category leader in transmission repair.



Case studies have been selected for illustrative purposes for management teams of midmarket companies considering a partnership with Sentinel and should not be considered an offer or solicitation of services or an actual or implied endorsement of Sentinel or any security, investment, or portfolio company. The portfolio companies highlighted are not representative of all current and prior investments of Sentinel. A list and description of investments since Sentinel’s inception is available on this website.

GSM Outdoors LLC

Consumer

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Executing a Management Buyout


Company: GSM Outdoors LLC

Position: Consumer

Location: Dallas, Texas

Date of Investment: June 2018

Exit Date: November 2020


Company Description
GSM is a leading provider of technologically-advanced, branded products for the hunting, sport shooting, and outdoor enthusiast markets. GSM's industry leading brands include Walker's (hearing protection and enhancement devices); Muddy, Hawk, and Big Game (tree stands and box blinds); Stealth Cam (technologically-advanced game scouting cameras); Birchwood Casey, SME, TekMat, GPS Bags, and CrossFire (shooting targets, holsters, range bags, and related accessories); HME, Skull Hooker, and Viking Solutions (hunting tools, mounts, and knives); Hunters Specialties and Western Rivers (scent attractants, scent control products, and game calls); Cyclops (specialty outdoor lighting); Boss Buck and American Hunter (game feeders); and NAP (broadheads and other archery accessories). GSM sells through a diverse mix of channels, including online retailers, sporting goods stores, mass merchants, outdoorsman retailers, farm and fleet stores, and distributors across the U.S. and Canada.

Background
GSM was previously owned by a private equity firm that acquired the business from its founder. After a two-year ownership that included two add-on acquisitions, the prior owner decided to sell GSM. GSM's management had built a deep M&A pipeline and was seeking a new partner to help accelerate the pace of acquisitions. Sentinel was selected as the buyer because of our experience investing in the consumer sector; our proven record of growing businesses through acquisitions; and the strong relationship we formed with GSM's management team during the sale process.

The Opportunity

  • To acquire a leading branded enthusiast consumer products business in an attractive, stable category.

  • To use GSM as a platform to become the consolidator of choice in its highly fragmented industry.

  • To partner with GSM's talented and experienced management team, who co-invested meaningfully alongside Sentinel and continued to lead the business.

 

Accomplishments
Achieved Growth Goals: In under three years, GSM completed 12 add-on acquisitions including two sizeable platforms with leading brands in key adjacent categories and 10 tuck-ins of smaller single brand or product businesses. GSM's management team smoothly integrated all of the acquisitions, demonstrated strong organic growth by cross selling and product innovation, and realized their goal of becoming the leading player in its industry.

Positioned the Business for Further Growth: Sentinel worked together with management to solidify GSM's strong foundation by moving to a new, state-of-the-art distribution center, investing in new hi-tech systems, and hiring additional management. GSM also acquired its primary supplier and R&D partner, which was transformative.

Built a Strong Partnership with Management: Sentinel established a strong and productive relationship with GSM's management and employees—more than 40 of whom co-invested with us. Sentinel also worked closely with the CEO to establish an incentive program to provide management with significant financial upside if Sentinel's investment in GSM had a successful outcome. Management's significant co-investment and incentive program aligned their interests with Sentinel's.

 

Outcome
During Sentinel's 2½ year ownership, GSM more than tripled its revenues and quadrupled its EBITDA while making investments to ensure it was well-positioned for further rapid growth. Having substantially exceeded our investment objectives, in November 2020, GSM was sold to another private equity firm in a highly successful management buyout transaction.



Case studies have been selected for illustrative purposes for management teams of midmarket companies considering a partnership with Sentinel and should not be considered an offer or solicitation of services or an actual or implied endorsement of Sentinel or any security, investment, or portfolio company. The portfolio companies highlighted are not representative of all current and prior investments of Sentinel. A list and description of investments since Sentinel’s inception is available on this website.

Trinity Consultants, Inc.

Business Services

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Executing a Management Buyout


Company: Trinity Consultants, Inc.

Position: Business Services

Location: Dallas, Texas

Date of Investment: November 2007

Exit Date: November 2011


Company Description
Trinity is the leading provider of air quality consulting and compliance services in the U.S. Trinity has specific expertise in the energy, manufacturing, industrial and utility sectors that helps its clients comply with air quality regulations and manage complex issues such as climate change and environmental sustainability.

Background
Trinity was founded in 1974 by a widely recognized expert on air quality to help companies comply with the Clean Air Act. As Trinity grew over time, the founder transferred one-third of his equity ownership to Trinity’s managers and employees through direct sales and incentive option grants. The founder also assembled and groomed a talented management team, to whom he had begun to transition responsibility for day-to-day operations. After more than 30 years, the founder/CEO decided to retire, fully transition out of the business, and seek liquidity for estate planning purposes.

Sentinel was selected by Trinity’s founder/CEO and his management team, who also had significant influence over the choice of buyer, from a limited group of prospective private equity firms. Sentinel’s ability to facilitate a relationship-intensive and complex ownership transition that balanced the demands of multiple parties was a key ingredient in our being chosen.

The Opportunity
To partner with Trinity's committed and experienced management team and continue Trinity’s proven growth strategy of opening domestic offices in new geographies and in select international markets, and by developing new business lines in high-potential adjacent markets such as greenhouse gas compliance.

Accomplishments
Supported a Smooth Transition from Founder/CEO: With Sentinel as its partner, Trinity’s management team made a smooth transition to new ownership.

Built a Strong Partnership with Management/Employees: In a people-centric environmental consulting firm, Sentinel established a strong and productive relationship with Trinity’s management and employees—more than 70 of whom were co-investors with Sentinel. Management’s significant co-investment program aligned their interests with Sentinel’s.

Achieved Growth Objectives: Trinity grew substantially by opening nine new offices, eight in the U.S. and one in an international market, and by developing a new greenhouse gas compliance business line.

Outcome
After four years, Sentinel and management had successfully achieved the growth objectives established at the outset. In November 2011, the business was sold to a new private equity sponsor in a successful transaction for Sentinel and its management and employee partners. Trinity’s employees reinvested a substantial portion of their proceeds into the new transaction and continue to own a meaningful portion of the business.



Case studies have been selected for illustrative purposes for management teams of midmarket companies considering a partnership with Sentinel and should not be considered an offer or solicitation of services or an actual or implied endorsement of Sentinel or any security, investment, or portfolio company. The portfolio companies highlighted are not representative of all current and prior investments of Sentinel. A list and description of investments since Sentinel’s inception is available on this website.