Published in Finance

Grand Rapids PE firm sees opportunity in hotel supplier

BY Sunday, April 25, 2021 04:10pm

The COVID-19 pandemic that’s battered the hospitality industry generates an opportunity for Grand Rapids private equity firm Blackford Capital to grow a recently merged portfolio company.

Focused on interior design, procurement and project management for the hotel industry, Illinois-based Boston Trade Interior Solutions looks to grow as hotel owners and operators use the down period to upgrade their properties and prepare for a post-pandemic rebound. Boston Trade Interior Solutions was created through the March merger between Vertically Integrated Products — which Blackford Capital acquired in 2017 — and Boston Trade International. 

The merger that created Boston Trade Interior Solutions produced “one of the largest players” in the design, procurement, and installation of hotel furniture and equipment that can grow as the industry rebounds from the pandemic, said Blackford Capital founder and Managing Director Martin Stein.

“It is a very unique time in the hotel industry and we are making a very contrarian bet that it’s going to come back,” Stein said. “We are looking to support hotels with their design, procurement and installation of all of the furniture, fixtures and equipment.”

The company serves hotel properties that held up in the pandemic comparatively better than resort properties in popular tourist destinations, such as Hawaii. As one example, Stein cited an Iowa hotel favored by truckers and travelers staying overnight as a core customer for Boston Trade Interior Solutions.

“We have a very different clientele base. Our customers’ revenues didn’t drop anywhere near as much as they did in the tourist areas,” he said.

Gaining market share

Boston Trade Interior Solutions has been picking up market share from an ailing competitor, and Stein expects the company to have its best year ever on an organic and acquisitive basis. Revenues for the merged company should triple to more than $50 million “based on all of the new market share that is available to us,” he said.

“We saw the hit last year in the third quarter and the beginning of the fourth, but then the business really started to take off in the fourth quarter and first quarter (of 2021) before we completed this acquisition because our customer segment is a good one and we had a competitor that was not doing well at all,” he said. “The best time to do renovations on hotels is when people aren’t staying there.”

Pent-up demand — or “revenge travel,” when “people are so angry at not being able to make trips that they are going to spend 2022, 2023 and 2024 fully traveling to locations that they had been inhibited from traveling to” — will also likely be a key recovery driver, Stein said.

An American Travel and Lodging Association outlook from January forecasts the industry will begin to slowly recover this year, starting with leisure travel. Business travel “remains nearly nonexistent, though it is expected to begin its slow return in the second half of the year.” A full recovery to pre-pandemic levels will occur by 2024, according to the association’s 2021 report on the state of the industry.

Blackford Capital plans to continue to add to the company. Stein expects more announcements involving Boston Trade Interior Solutions in the coming months.

Deal activity grows

In a recent filing with federal securities regulators, Hospitality Consolidation Co. LLC — a corporate entity formed by Blackford Capital in connection with the Boston Trade Interior Solutions acquisition — indicated it had raised $2.3 million in capital from four investors.

The acquisition and merger to form Boston Trade Interior Solutions was among three deals Blackford Capital completed in the first quarter.

In January, Blackford Capital acquired Aqua-Leisure Industries Inc., a maker of leisure products for water sports and recreation based in Avon, Mass.

Blackford Capital now looks to do add-on acquisitions and to grow Aqua-Leisure globally by targeting markets in the southern hemisphere such as South America, Australia, southeast Asia and Africa, Stein said.

Only about 10 percent of Aqua-Leisure’s $70 million in revenue annually comes from foreign markets. Blackford Capital aims to grow sales from outside of the U.S. to 30 percent of total revenue over five years while also growing domestic sales, he said, noting that “everybody likes to swim.”

Aqua-Leisure could make add-on acquisitions in the second half of 2021, starting domestically and then looking internationally, he said.

Blackford Capital deployed about $20 million to acquire the company and a corporate entity the firm formed in connection to the acquisition indicated that BFC-H20 LLC seeks to raise $50 million, according to a February filing to the U.S. Securities and Exchange Commission. The filing indicated that BFC-H20 had raised nearly $2.9 million from 25 investors.

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