Deal of the Year, Small Market, 2014: SunTx Capital Partners


Firm: SunTx Capital Partners

Target: Huron Inc

Hold Period: 7.5 years

Return Multiple: 7.8x

Lenders: PNC Bank, Smith Whiley & Co, Invest Michigan Mezzanine Fund (Credit Suisse)


  • Streamlined Huron’s business processes
  • Added new product lines
  • Refinanced the company

Following a dramatic drop in automobile sales in the late 2000s, all of the Big Three U.S. automakers—General Motors Co, Ford Motor Co and Chrysler—were in serious trouble. Most auto part makers were doing no better. However, despite the extremely challenging economic environment, Michigan-based Huron Inc was able to emerge from the downturn with a stronger balance sheet and expanded product offering—a feat that not many in the space could claim today.

In 2005 SunTx Capital Partners bought Huron, a supplier of machined steel rods, for $25.9 million, including equity and debt, after the company had gone through an unsuccessful auction process. Capital for the deal came from SunTx Capital Partners LP, the sponsor’s $235 million debut fund raised in 2004.

Founded in 1943, Huron had been one of the last remaining holdings of Strategic Industries LLC. Had SunTx Capital not stepped in and bought Huron when it did, the company likely would have gone the way of many of its peers that filed for Chapter 7 or Chapter 11 protection.

“It was an in an industry where we saw opportunity to use what had already been built and make changes based on customers’ current and future needs,” said Ned Fleming, managing partner and founder of SunTx Capital. “We took the expertise the previous owners had built and we grew the business in collaboration with management, while making it more efficient.”

Under its previous owner, Huron had been cash constrained and had an unmotivated workforce. Despite the issues facing the company, SunTx Capital saw potential in Huron, which had positive growth dynamics and strong customer relationships.

Sleeves Rolled Up

After the purchase was complete, SunTx Capital quickly got to work.

“The very first thing we did was get everyone at Huron to buy into the vision that this was now going to be a company of excellence and we were going to lead the company in that direction. When you do what’s in the best interest of the company, everything else comes to bear. Create a great company and you will create value for the company and your LPs,” said Fleming. “That is our premise.”

Prior to SunTx Capital’s purchase, Huron for many years had maintained an emphasis on machined steel rods without expanding its product base. Its new sponsor positioned Huron to leverage its niche position, transforming itself into a component supplier while expanding into the specialized tubular fabrication market to serve the emerging powertrain technology market. As a result of this growth, Huron was able to significantly expand its customer base, particularly with Ford and Toyota Motor Corp engine programs, all resulting in gained market share during and following the auto industry collapse. Huron’s revenue from 2009 through 2013 increased by nearly 100 percent, according to SunTx Capital.

Additionally, while growing Huron’s product lines, SunTx Capital also worked to lower costs and improve operations. For example, realizing that the headwinds were building in 2008, SunTx Capital consolidated Huron’s two plants into one, allowing the company to right-size its cost structure quickly as sales volume in the auto sector dropped dramatically in 2009. Simultaneously, the buyout shop reexamined costs and product profitability and developed a new product cost accounting system and pricing strategy.

These changes led to better pricing decisions and better product portfolio discipline. SunTx Capital also helped Huron renegotiate all of its raw material pass-through agreements to ensure no margin erosion from raw materials. The sponsor then successfully negotiated new labor contracts with Huron’s local unions. The new contract was fair for employees, favorable for Huron and reflected the economic environment, according to SunTx Capital.

SunTx Capital made some financial changes to the company during its period of ownership as well. Huron’s leverage ratios were at the market limits prior to the buyout. With SunTx Capital’s help, Huron strategically paid down debt and refinanced senior debt with lower interest rates and a fixed-charge covenant. In October 2008, Huron refinanced its senior debt obligations with PNC Business Credit, the asset-based lending arm of PNC Bank. The refinancing closed only several weeks after the collapse of Lehman Brothers.

“To have closed a major refinancing transaction in the midst of the Great Recession when the debt financing markets had essentially shut down was a true testament to the strength of Huron’s balance sheet and its operational accomplishments,” said Fleming.

In September 2011, Huron announced the completion of a $27 million dividend recapitalization, with support from Huron’s senior lender, PNC Bank, and new subordinated debt lenders, Smith Whiley & Co and Credit Suisse’s Invest Michigan Mezzanine Fund, further positioning the company for growth.

Shortly after, the time came to think about a sale. In February 2013, SunTx Capital sold Huron to Dallas-based Trive Capital. Including all cash distributions, SunTx Capital achieved a cash-on-cash return of approximately 7.8x, with a gross IRR of approximately 33.5 percent. At the time of the sale to Trive Capital, trailing 12-month revenue had nearly doubled from 2009, while EBITDA had tripled.

“We are in the private equity business and we had been invested in Huron for (close to) eight years,” said Fleming. ”The company was in good shape and it was time to put the company in the next steward’s hands.”

Danielle Fugazy is a contributing editor to Buyouts Magazine.