Nautic Brakes For HB Performance –

Via a management-led buyout late last month, Providence R.I.-based Nautic Partners, acquired Hayes Brake Inc., a designer and manufacturer of non-automotive breaks and related equipment. Subsequent to the acquisition, the company’s name was changed to HB Performance Systems Inc. Though the terms of the transaction were not disclosed, Nautic typically invests between $25 million and $75 million in equity per deal and generally keeps its total transaction sizes between $50 million and $200 million.

With approximately $100 million in consolidated revenues, HB manufactures custom braking systems for original equipment manufacturers of motorcycles, bicycles, ATVs, snowmobiles and other non-automotive applications. Nautic was introduced to the company last October though NatCity Investments Inc., the Cleveland, Ohio-based I-banking subsidiary of National City Corp.

HB serves four main markets: the heavy-weight motorcycles, power sports, mountain bikes, and off-road vehicles such as construction and agricultural equipment. Each of these sectors, according to Nautic, is experiencing, or will experience, a healthy growth rate for the foreseeable future.

Fraser Preston, a vice president at the firm, said that part of Nautic’s attraction to the sector rests in the market’s sheer size. “It’s massive,” he said. “If you think about it, any vehicle or device that is not a car or truck that uses brakes falls into this market. Windmills use brakes, some industrial power saws use breaks, golf carts, etc.”

With operations in Mequon, Wis. and Taiwan, HB serves customers such as Arctic Cat, Caterpillar, Decathlon, Giant, John Deere, Harley-Davidson, Kona, Polaris, Trek Bikes and Textron. “These end-markets are much smaller and more fragmented than the auto brake industry,” Preston said. “The manufacturing process is comprised of much smaller runs that are harder to produce efficiently, which could lend nicely to cost-saving opportunities down the road. If you are Delphi, it’s much easier to produce a million car brakes than it is if you’re Hayes Breaks running off 40,000 snow mobile brakes.”

Another plus to having smaller manufacturing operations is that there are fewer companies of size that can pose major competitive threats to HB. “We think the company can take market share because in some spaces competition is limited,” Preston said, adding that recent new product launches, such as single-piston disc brakes for mountain bikes, will also help HB take a larger share of the market.

The fragmented nature of the market will also allow Nautic to back HB on an aggressive add-on campaign. The company already has two tack-on acquisitions under letter of intent, both of which will likely close within two months. In addition, HB’s management has already identified eight to 10 acquisitions they would like to peruse, and Nautic has identified them as viable opportunities, Preston said.

Equity for this transaction came from Nautic Partners V LP, which raised a total of $1.1 billion and held a final close in 2001. Including the HB deal, Fund V is roughly 60% committed, and the firm anticipates raising a follow-up vehicle within a year. Financing took the form of senior debt, which was provided by Marshall & Ilsley Bank, La Salle Bank and J.P. Morgan Chase.