GPs Enamored With Enclosures –

Buyout firms, especially in relationship to their venture capital counterparts, have a knack for getting in and benefiting from the hottest industries without completely putting their tails on the line.

For example, take the recent attention firms are giving “enclosure” companies. These firms are really basic manufacturing businesses … with an edge.

The ones receiving more and more attention from GPs include those that manufacture enclosures or coverings for telecommunications and electronics equipment, such as computers and cellular phones.

One of the largest deals so far this year within the enclosures industry was the $317.5 million first quarter buyout of Trend Technologies by the U.S. arm of U.K. firm Doughty Hanson & Co. Trend Technologies manufactures plastic and metal enclosures for electronics. It provides its customers with injection molding, metal stamping, mechanical assembly, tooling maintenance and logistics management.

The San Jose, Calif.-based company generated approximately $310 million in sales last year, and Doughty Hanson intends to take it to $1 billion before 2002.

Trend Technologies and its status in the enclosure industry are a perfect example of what buyout firms look for in a potential investing environment.

Doughty Hanson became interested in the company because its growth prospects are “incredibly attractive,” said a partner at the firm.

“This company combines the rapid growth of technology with the stability of cash flow associated with manufacturing,” the partner said.

The electronic enclosures industry, which grew by 40% last year, has approximately 800 players – practically all privately owned – with only a few boasting sales of more than $100 million, she added.

Doughty Hanson is not the only firm to pick up on the fact that this is a highly fragmented industry that is ripe for consolidation.

More recently, EM Holding Corp., a portfolio company of TMG Management – manager of the Texas Growth Fund – just last month purchased Computer Cabinet Corp. (C3) for approximately $20 million.

C3 is a precision sheet metal fabricator focusing on the telecommunications and medical industries.

“We’re not high-tech guys and we don’t want to be,” said Brent Humphries, a partner at TGF Management. “But we see real value in a company that manufactures products that are in high demand, yet we can still understand what they are.”

Humphries reiterated the Doughty Hanson partner’s comments, saying the industry is about to start seeing a lot more deals involving companies that are seeing growth in sales because they piggy-back on industries that are important to consumers.

“I can’t think of a better industry to be in,” he added.