Industries Ripe for an Exit from Private Equity Firms

Portfolio companies currently held 5 – 7 years are likely ripe for an exit from their private equity owners. Industry concentrations within this aged group of portfolio companies might provide leading deal flow indicators. These industries, and certain sub-sectors within them, may have tidal changes of ownership as private equity firms convert equity to liquidity to provide returns to limited partners.

Using our database of private equity portfolio companies, I identified four industry sectors that are thematic in the U.S. portfolio companies currently held between 5 and 7 years:

1. Manufacturing
2. Technology
3. Medical / Health
4. Oil & Gas

No surprise really, since these are large industry categories. Consequently, for each industry above, I looked for sub-sector concentrations, discussed below.

(Note – I chose 5 – 7 years as the holding period because I reasoned that portfolio companies held longer than 7 years are often owned by PE firms without a typical investment time horizon, sometimes investing from their own funds with a buy-and-hold-forever strategy.)

Manufacturing

Manufacturing tops the list because this is such a broad category.

Reviewing the portfolio companies within the manufacturing category, I thought I might see certain recurring sub-sector themes, but I did not. This group of manufacturing portfolio companies are very diverse and include companies that manufacture a variety of products for a wide range of industries. A few examples to illustrate:

Archery Equipment: BowTech held by Norwest Equity Partners

Composites: C-K Composites Co held by Stonewood Capital Management

Connectors & Cable Assemblies: Quick Cable held by Tonka Bay Equity Partners

Dental Implants: Mainstay Medical held by Seventure Partners

High Pressure Laminates: Wilsonart held by Clayton, Dubilier & Rice

Ignition Components: Channel Products held by Weinberg Capital Group

Irrigation Equipment: Irrigation Components International held by Prospect Partners

Material Handling: ACCO Material Handling Solutions held by KKR & Co.

Medical Imaging Equipment: Gamma Medica-Ideas held by Psilos Group

Mineral Supplements: Delavau held by HBM Holdings

Non-woven Fabrics: Foss Manufacturing Company held by Kingfish Group

Outdoor Canopies: ShelterLogic held by Charter Oak Equity

Personal Protection Products: Apex Microtechnology Corporation held by Alerion Capital Group

Pet Treats: Phelps Industries held by Wafra Investment Advisory Group

Power Supplies: Dynapower held by Pfingsten Partners

Piston Rings: Hastings Holdings Corp. held by RFE Investment Partners

Precision Engineered Products: H-D Advanced Manufacturing held by The Riverside Company

Reagents: Immucor held by TPG

Salty Snacks: Shearer’s Foods held by Ontario Teachers’ Private Capital

Spas: Four Winds Spas held by IVC Group

Thermoplastic Compounds: Epolin held by Polymathes Capital

Titanium Investment Castings: Selmet held by Blue Point Capital Partners

Trailers: Triton Trailers held by Jacsten Holdings

Vales & Pumps: QCC held by Promus Equity Partners

Window Coverings: Springs Window Fashions held by Golden Gate Capital

The full list is considerably more varied than the examples provided above.

Technology

Unlike the manufacturing portfolio companies, the technology private equity investments of 5 –7 years ago did center around a few key sub-sectors. These are shown below with a few sample companies for illustrative purposes:

Software

• Genesys held by Technology Crossover Ventures
• Great Bay Software  held by Search Fund Partners
• KLDiscovery held by WestView Capital Partners
• Lumesis held by Safeguard Scientifics

Medical/Healthcare Tech

• Acelity held by Apax Partners
• Amphora Medical held by Baird Capital
• Freedom Innovations held by Health Evolution Partners
• RxAnte held by Aberdare Ventures

Marketing Tech Tools

• Altitude Digital held by Mercato Partners
• Brand Networks held by AEA Investors
• Magnetic held by Rho Ventures
• Signal held by Baird Capital
• Strategic Marketing held by Svoboda Capital Partners

Information Technology

• Artel held by  TPG
• Coalfire Systems held by Baird Capital
• CSS Corporation held by The Silverfern Group
• Insight Global held by Ares Management

Human Resources Tech Solutions

• Bamboo HR held by Sorenson Capital Partners
• Empyrean Benefit Solutions held by FTV Capital
• Infinisource held by Accel-KKR

Education Tech

• K12 held by Technology Crossover Ventures
• Knowledge Factor held by Leeds Equity Partners
• Logical Choice Technologies held by Vert Capital Corp.

It’s interesting to note that technology investments used to mean chips, circuits and hardware like computers and printers. Very few (perhaps none) of those traditional technology companies are on this list as the private equity firms pushed into higher margin, higher growth, more scalable, less capital-intensive businesses in the tech space.

Medical / Healthcare

Within the medical sector, the predominant themes seem to be Medical Devices (offering specific technical devices to the healthcare industry) and Medical Equipment (offering general, more basic operational equipment to hospitals).

Medical Devices

• Amphora Medical held by Baird Capital
• Camela Medical Group held by The Omnia Group
• CSA Medical held by SV Health Investors and First Analysis
• Ivantis held by EDBI
• NovaSom held by Safeguard Scientifics
• NPWT Corporation held by MVC Capital
• Specialized Medical Services held by The Riverside Company
• Xtant Medical held by OrbiMed Advisors

Medical Equipment

• Dynamic Healthcare Services held by Lakewood Capital
• Freedom Medical held by RAF Industries
• Gamma Medica-Ideas held by Psilos Group
• Integra Partners held by Olympic Valley Capital
• Kova International held by One Rock Capital Partners
• MPE held by Pfingsten Partners
• Winco Mfg. held by Capital for Business

Oil & Gas

Within the oil & gas sector, these aged portfolio companies group into four sub-sectors (Exploration & Production being the largest):

Exploration & Production

• Black Light Holdings held by ArcLight Capital Partners
• BlackBrush Oil & Gas held by Tailwater Capital
• Corlena Oil Company II held by Kayne Anderson Capital Advisors
• Elevation Resources Holdings held by Pine Brook Partners
• ILX Holdings II held by Riverstone
• Kraken Oil & Gas I & II held by Kayne Anderson Capital Advisors
• PetroSantander held by Metalmark Capital
• Silver Creek Oil & Gas held by Crestview Partners
• Venari Resources held by Warburg Pincus

Oilfield Services

• Gullett & Associates held by Linx Partners
• Liberty Oilfield Services held by Riverstone
• Panhandle Oilfield Service Companies held by Akoya Capital
• ProPetro Services held by Energy Capital Partners
• Refinery Specialties held by Post Oak Energy Capital
• Seitel Holdings held by Centerbridge Partners

Oilfield Products

• Antelope Oil Tool (Innovex Downhole Solutions) held by Intervale Capital
• Applied Industrial Machining held by Argonaut Private Equity
• GR Energy Services Holdings held by Pine Brook Partners
• Rod and Tubing Services held by Search Fund Partners
• Sonneborn held by One Equity Partners
• Spartan Energy Services held by Harren Equity Partners

Oilfield Acquisition Companies

• Accelerated Oil Technologies held by KKR & Co.
• Excalibur Resources held by EnCap Investments
• Fieldwood Energy held by Riverstone
• Marlin Resources held by EnCap Investments
• Protégé Energy III held by EnCap Investments
• Unitex Oil and Gas held by Ridgemont Equity Partners

Conclusion

It stands to reason that these sectors will have a flux in ownership in the not-too-distant future as private equity firms sell to close out the life-cycle of their funds and return capital to limited partners.

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