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Martin Stein said the decision to move Blackford Capital’s headquarters to Grand Rapids meant a return to his roots, with access to the small and mid-sized businesses that his firm invests in. PHOTO: NATHAN PECK

By Nathan Peck | MiBiz
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GRAND RAPIDS — For Martin Stein, the decision to move his private equity firm — Blackford Capital — to Grand Rapids was a bit of a homecoming.

After stints in Chicago, Los Angeles and Boston, Stein’s decision to move his base of operations to Grand Rapids was in large part to have the quality of life for his family that he found in the area and because of his ties to the region.

“I have spent 20 years away in Chicago, St. Louis, L.A., Boston … really it was the community, values and culture in Grand Rapids that brought me back,” Stein said.

His family’s roots in the area have helped shape his investment philosophy as both his stepfather and grandfather worked in manufacturing in West Michigan. The private investment firm focuses on the acquisition, management and growth of middle-market manufacturing, distribution and service companies. Blackford targets companies where the owners are looking for growth capital or to sell, and provides attractive exit options for owners and operators of small to medium-sized private firms. Stein takes a long-term view on investments, and Blackford typically works with portfolio companies between five and 10 years.

“We’re looking for companies that know how to grow or how to grow capital,” but haven’t been able to put the two together, he said. “We are able to add the growth capital or the intellectual capital that is needed, (and) put in place a board with great experience … $30-40 million companies don’t necessarily have access to that opportunity.”

Prior to founding Blackford Capital, Stein worked as a consultant with Mercer Management Consulting developing growth strategies for Fortune 500 companies such as Sears, Dow Chemical, Searle Pharmaceuticals, Pfizer and PacifiCare Health Systems. It was in his MBA program at Harvard Business School where he began exploring investments in small and midsize companies. While classmates were raising millions for venture funds targeting Internet and tech companies, Stein struggled to raise $300,000 for his concept of investing in manufacturing companies. Today, with manufacturing leading the recovery, the venture capital environment is becoming more difficult as investors are shying away from risk.

“Venture capital has had a tough go around because there is so much excitement and then lows. We have lower returns in the short term on the risk-return formula,” Stein said. “Our long-term returns are much higher than that asset class.”

The last three years have been tough on manufacturers, but most are emerging leaner and stronger.

“The economy has been tough on our portfolio companies. Some of them certainly have struggled. The biggest concern has been exogenous risk factors. We supply construction firms, and their customer base dropped 95 percent.”

Stein uses an aggressive and scientific approach to identifying opportunities. It’s a highly structured process relying on investment bankers, business brokers, accountants, lenders and attorneys to help evaluate potential deals. Blackford then brings in boards with experience in industry and sales support to help target export markets.

West Michigan, with its strengths in manufacturing and wealth of family-owned businesses, is a great opportunity for Blackford. The majority of the firm’s six portfolio companies and 15 operating partners are in the Midwest and East Coast. The six portfolio companies generate a combined $200 million in revenue. The firm evaluates 2,000 deals annually and closes four to six each year, and Stein expects to grow that number to 5,000 and to close up to a dozen deals in the future.

“I’m very optimistic. If you’re looking at areas where manufacturing is strong, Michigan is as good as it gets,” Stein said. “We are in West Michigan for a reason. I very much want to find companies and the talent that is here.”

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