- Prospect invested in 2005, partnering with CEO Jeff Porter
- Expanded from recreational vehicles into heavy-duty trucks
- In 2014 acquired telematics company to create Road-iQ vision system
When Prospect Partners sold Velvac to Eastern Co, a deal that closed April 3, it marked the end of a more-than-decade-long hold.
During that time, which encompassed the financial crisis, the Great Recession and the recovery, Velvac expanded from producing mirrors for motor homes into supplying vision systems for heavy-duty trucks and other commercial vehicles.
“We made the investment effectively Aug. 31, 2005,” said Rick Tuttle, founding principal at Chicago-based Prospect. The idea was proposed by Jeff Porter, who became CEO of Velvac and will stay on in that capacity under Eastern.
At that time, Velvac, New Berlin, Wisconsin, had the largest market share among providers of mirrors for RVs. When the recession hit, “any kind of big-ticket category” suffered, Tuttle said, “so our end markets declined dramatically. That ended up being a great opportunity long term for Velvac.”
“It was an uncomfortable and unpleasant period to go through, but it was even more unpleasant for our competitors,” Tuttle explained. “During the depths of the recession, we put some more capital in to support the company,” including in the form of acquisitions that enabled Velvac to offer new products.
The high-end specialty vehicle markets took about five years to recover. In addition to entering new markets and regaining pre-recession volume, Velvac invested in a technology called Road-iQ, which uses cameras and a dash-mounted iPad to provide a 360-degree view of a vehicle’s surroundings. The feed can be accessed remotely and gets downloaded into the cloud along with telematics data, for review by a fleet manager, for instance.
The core of the technology was developed by a software company, Qualnetics, which Velvac acquired in 2014. “We put a lot of money into developing that technology, where it looked like there was a market demand, and we didn’t want to sell the company too early, when that technology hadn’t been proven out,” Tuttle explained.
Eastern Co’s chief financial officer, John Sullivan, confirmed that the Road-iQ platform made Velvac an attractive target. “When the private equity firm presented this as an opportunity, we looked at it and we said, ‘Ah, this is a business that’s similar to our company in that it manufactures products for OEMs with a high level of engineering,’” he said. “So it was natural to pursue this as an acquisition.”
Based in Naugatuck, Connecticut, and listed on Nasdaq, Eastern owns several industrial hardware and security product divisions that operate autonomously.
Asked about price, Sullivan said it had to be evaluated “in relative terms, especially in the M&A market, [where] multiples have been skyrocketing.”
“I think our multiple was reasonable, based on the valuations that we had and based on multiple companies. So I wouldn’t say it was expensive.” He added that the deal included an earnout provision, based on Velvac’s achieving certain levels of sales and profitability. “So if it doesn’t perform, we’re basically not paying for it.”
Prospect did not disclose financials. Tuttle said the firm “took some distributions over the lifetime of the investment,” along with management. “We always believe in management owning stock, to the extent they can, as we do.”
The sellers were advised by Ron Miller and Chris Larson of the Milwaukee investment bank Cleary Gull. Miller said Velvac is “an excellent company that commanded a very good price.”
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Photo of Rick Tuttle courtesy of Prospect Partners