The team at Grand Rapids-based private equity firm Auxo Investment Partners has a saying that every deal has to die once before it closes.
“That tends to be the way these things work — you often come across things that look like they could be deal killers and you just have to find a way to work through them,” said Jeff Helminski, managing partner of Auxo, which invests in growing founder- and family-owned industrial, manufacturing and business-services companies.
Helminski and his team at Auxo encountered plenty of those instances in its 2020 acquisition of Indianapolis-based Precision Parts Group Inc.
Precision Parts Group’s two divisions included Paramount Tube, which manufactures highly engineered and custom small diameter spiral-wound and extruded tubular products, and Euclid Medical Products, which manufacturers single- and multi-dose pharmaceutical packing systems.
Precision Parts Group operates out of the Midwest region with a joint venture operation in China.
By closing on the deal in September of 2020, Auxo was able to establish a platform in the spiral-wound tubular products and pharmaceutical packaging industries.
By Helmisnki’s assessment, the transaction came with a particularly complex set of characteristics and dynamics that the team had to finesse in order to close the deal against the backdrop of the ongoing COVID-19 pandemic, a potential deal-killer of its own.
The deal earned a nod in this year’s M&A Deals of the Year Awards as an honorable mention.
The international component was one distinguishing factor of the deal, marking the first time that Auxo has acquired a company with international operations. However, the firm’s team members did have plenty of experience in the international space.
The Chinese joint venture, called PPG International, was partially owned by a minority shareholder who led the operation in the country.
The challenges arose when Auxo was unable to connect with members of the joint venture in person and — because of a travel ban — had to rely on a consultant for onsite operational due diligence. Auxo’s consultant splits time between Michigan and her home in Austria, but because of the travel limitations, even she had to rely on an additional partner on the ground in China to carry out the crucial phase of the deal.
“Building a relationship with them, getting to know them and having them trust us was important and that was a challenge,” Helminski said. “In terms of the operational diligence, we had to rely on a third-party adviser really almost two steps removed.”
Navigating the due diligence of an extremely niche market was also a hurdle for Auxo. The team worked to map out the state of the market, determine where PPG stood in the space, uncover opportunities to dominate the industry and cultivate industry relationships. Auxo tackled this through consulting with industry experts and conducting independent research, which was a challenge during a time of economic and geopolitical uncertainty.
A New York City-based private equity fund was the primary seller of PPG. However, the largest shareholder was the incumbent mezzanine lender who also desired to remain in the deal as both a lender and equity owner.
This left Auxo to negotiate a transaction with a singular partner at the mezzanine lending firm who was both the largest shareholder and subordinated debt holder. At the same time, the party was the new subordinated debt holder Auxo had to negotiate with, and they desired to be an equity investor in the deal going forward.
Precision Parts Group CEO David Hooe was the second largest shareholder and had been with the company for 30 years. Hooe was concerned with the legacy of the company and the fate of its employees.
Auxo caught a serendipitous break. One of Auxo’s founding investors is also the founder of a Chicago-based private equity firm, which coincidentally owned PPG previously when Hooe took over as CEO. This helped to build a bridge between Auxo and PPG.
With these latest experiences under its belt, Auxo Investment Partners continues to seek out deals. Helminski said the firm is eying a European deal as a potential add-on acquisition for one of its existing companies.
“We’re usually looking for good companies that we think we can help make a little better, but mostly grow them over time with our hands on, operationally active engagement with the company,” Helminski said.