Private equity and the fabricator

May 1, 2012
By: Tim Heston

The Roberts Co., a major industrial fabricator in the Southeast and one of this year's FAB 40 companies (to be published in our June issue), probably wouldn't be the company it is today without Private Equity. Since Main Street Resources purchased the company in 2008, just months before the financial crash, Roberts Co. has benefited from some major personnel investment, including a swath of new senior managers. They're not outsiders, but experienced fabricators. They know the chess game involved when executing a major industrial project. All the right pieces—engineering, fabrication, field erection,and maintenance services—must be moved to the right place at the right time.

According to company sources, the private equity firm gets high-mix, low-volume manufacturing. In Roberts' case, the company is benefiting from major company investments, including a new, 90,000-square-foot fabrication facility that opened late last year. The company prepared for the upswing during the downturn, and Roberts' current growth projections are evidence that the gutsy strategy worked.

Moreover, it's evidence that private equity's reputation perhaps isn't fully deserved, at least these days. Of course, private equity has a history of management horror stories and over-leveraging. For many, the very idea of private equity just doesn't sit well. Private equity firms undergo a cycle (at least ideally) of buy low, improve, and sell high. It's about multiples; it's just business; it's just numbers.

But then I read quotes like this: “You make investments in people. We believe that North American manufacturing deserves to exist.”

That didn't come from a manufacturing advocacy group or union leader. That was John Stewart, an executive at Monomoy Capital Partners, which now owns Heat Transfer Products Group in Scottsboro, Ala. This week's Bloomberg BusinessWeek cover story tells the story of a reporter who spent a week at HTPG to aid in efficiency efforts. He wasn't there to see heads roll, but instead assisted the metal products manufacturer in its lean manufacturing initiative.

The article's point: Private equity isn't always about hatchet men and layoffs. Everyone has bought into the concept of identifying and eliminating waste. It's great to see terms like muda, 5S, and—for that matter—the details of a metal fabrication operation make the cover story of a major business weekly. The reporter describes how Mike Bray, a manager at HTPG, excess work in process.

“Bray sees waste in the copper stacked at the loading bay. He knows it make sense to leave it there—the plant turns over its stock of copper 13 times a month—but it bothers him to see so much inventory … Bray is a type-A obsessive masquerading as a good ol' boy.”

Bray is why investors see so much value in manufacturing. One day, that stack of copper may be gone, and HTPG's balance sheet may look even better.

FMA Communications Inc.

Tim Heston

Senior Editor
FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-381-1314