Born last year out of Hilco Trading Co. Inc., Hilco Equity LLC has closed on its first fund and already made two investments. Being that Hilco Trading has a hand in a bunch of companies though its 13 different businesses, launching a private equity firm seemed to make sense. The new fund closed with $40 million. Hilco Trading put 50% of the money into the firm; high-net-worth individuals and three of Hilco’s executives came up with the rest.
“This really came together because of Hilco, which is a broad spectrum of financial services companies that help businesses with balance sheet issues, appraisals and sales. They are leaders in this sector and they touch a broad number of companies. It’s a unique relationship. Hilco Trading gives us the heads-up on lots of deals,” said Ryan Bohr, a principal with Hilco Equity. “We can harness the deal flow that comes out of their network. They have a tremendous amount of relationships and insights that are paying off.”
The new fund focuses on companies in transition. “They are either going through an operational or financial transition and are usually underperforming,” said Bohr.
The firm’s sweet spots are traditional industry, manufacturing, consumer products and light industrial businesses with revenue of between $3 million and $8 million. Deal size ranges from $10 million to $50 million.
Additionally, while Hilco Capital can and will supply the debt or mezzanine financing on Hilco Equity’s deals, it doesn’t always. The fund will be fully invested when it makes five to seven deals, which is expected to take the next four to five years.
To date, the firm has made two investments. It most recent investment was in Midwest Products Finishing Inc., an electrodeposition coating company for automotive parts. Midwest also provides light assembly operations and can manage its customers’ imported components. Hilco Equity partnered with Michael Alcala on the deal. Alcala has over 20 years of operating and managerial experience in the automotive industry. He has held executive positions at portfolio companies of Questor Partners (AZ Automotive, Inc., and AP Automotive Systems), Faurecia Exhaust Systems and Tenneco Automotive.
While Hilco Equity wouldn’t disclose the deal price, Bohr said it’s consistent with its mandate. “This company has a long history of growth and profit and is strong in its core assets. We just have to work on broadening the company’s investor base and penetrating its core automotive market,” said Bohr.
Although Bohr isn’t sure of an exit strategy at this point, he said that after a holding period of three to five years, the company would most likely be sold to strategics or be recapitalized.
The first investment Hilco Equity made was into JW Fergusson and Sons, a label printer. This deal was also in the firm’s sweet spot. “This company also had a strong business model and needed to address the next level of growth,” said Bohr. “Our first order of business is to increase operating efficiencies and leverage its capabilities, then we need to further penetrate its customer base.”
Hilco Capital also provided mezzanine capital for this deal.