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Private Equity Dealmaking in the Manufacturing & Distribution Industry

Feb 7, 2022

In this inaugural episode of the Private Equity Dealbook, Elana Margulies-Snyderman, Senior Manager, Publications, EisnerAmper, speaks with Russell Greenberg, Founder & Managing Partner of Altus Capital Partners, a private equity firm in Connecticut that invests in lower middle market manufacturing businesses throughout the U.S.  He discusses share his outlook for dealmaking in manufacturing businesses in North America, including which industries in the sector are poised for strong deal activity, which sectors will face challenges, his due diligence process for buying companies, what the firm is doing to champion ESG and more.


Elana Margulies-Snyderman: Hello and welcome to the inaugural episode of EisnerAmper's Podcast Series on the private equity deal book. I'm your host, Elana Margulies-Snyderman, and with me today is Russell Greenberg, founder and managing partner of Altus Capital Partners, a private equity firm in Connecticut that invests in lower middle market manufacturing businesses throughout the US. Prior to forming Altus Capital Partners, Russell started his first private equity firm in 1997 called Max Capital Partners, which also focused on investing in industrial businesses.

He began his career as an investment banker in 1981 and worked for a number of Wall Street firms from 1981 until 1997. Today, Russell will share with us his outlook for deal making in manufacturing businesses in North America, including which industries in the sector are poised for strong deal activity, which sectors will face challenges, his due diligence process for buying companies, what the firm is doing to champion ESG, and more. Hi, Russell. Thanks for being with me today.
Russell Greenberg: Elana, thanks for having me. I look forward to this discussion.

EMS: Same here. Russ, I wanted to start off and ask you to tell us a little about your firm and how you got to where you are today.
RG: Yes. My firm Altus Capital Partners has been around for two decades. We've focused on investing in lower middle market US-based manufacturing firms. We've always looked for companies that have proprietary products or unique technologies. We really like to look throughout the US, and this is particularly a good time in the industrial Heartland. Altus has invested in a number of different sectors in manufacturing, including building products, aerospace and defense, plastic products, capital goods, as well as infrastructure components.

With all the years that we've been doing this, we've developed a deep expertise in the sector, which has really given us a great understanding of how to analyze opportunities and deal with the challenges that we face. Many times we from family owners, and those owners have unique challenges as they transition the business from an individual ownership to an institutional ownership.

When we make our investments, our goal is to have a disciplined process where we thoroughly analyze each opportunities, looking at the risks, as well as the rewards. And based on our expertise that I mentioned, we engage in deep collaborative partnerships with each of the management teams that we invest with.
EMS: Russ, the COVID-19 pandemic clearly impacted deal activity in the M&D industry. Given this backdrop, can you share your outlook for deals in the sector?
RG: COVID challenged a lot of industries and a lot of deal making. But as we saw last year in 2021, this was a very busy year, as people were catching up and doing deals that weren't done in 2020 and the first part of 2019. But the issue we see coming out of 2021, which I believe will be with us for a long time, is supply chain. We've all read about it and heard about it and seen grocery stores not have items or car dealers not having cars. But there are some underlying issues that happen because the old reliance on suppliers, particularly suppliers from Asia, is not here anymore.

It's pushing reshoring to the US. And therefore, we believe that this reshoring push focused on more investment in US companies will lead to a very active year in 2022 in deal making. Manufacturing is poised to do a lot better in the US due to a push for automation through the use of robotics and software technologies.
EMS:Russ, that segues nicely into the next question I had for you is, what areas in the M&D subindustries do you see the greatest opportunity for deals and why?
RG:Okay, it's a really good question. We have specific interest in building products, infrastructure components, which could be a broad range of things, as well as businesses that are investing in automation. We like capital goods, and many of these capital goods providers have really embraced automation. Going back to my first point on housing, we see the shortages. We see the much higher prices, approximately 20% growth in home prices over the last 24 months, and therefore those are the areas where really focused on.
EMS:Russ, on the other hand, what are some of the challenges you anticipate for deal making this year and why?
RG:I think one of the biggest challenges has been the large increase in valuations, particularly over the last six to nine months, as investors, private equity, corporate buyers have a lot of capital. Interest rates are still low, even though they'll go up a little this year. These are expensive deals, much more than they were pre-pandemic. And then we're faced with challenges in diligence, things take longer, and the cost of debt will become more expensive this year. No one knows how much more expensive, so that will be a challenge.
EMS:Russ, you just touched briefly on diligence. I think this would be a great opportunity for you to discuss your due diligence process for acquiring M&D companies and how, if at all, has it evolved the last couple of years since COVID-19.
RG:Our diligence practice have not materially changed since COVID began. We've always been very thorough in our review of businesses. But it's important to understand due to COVID and the pandemic that drivers for revenue and costs have really changed, where pre-pandemic you had a pretty good idea of input costs and demands. Now either a business may do much better due to COVID, or other businesses been very hurt for COVID. We have to really try to understand what is just a COVID bump or a COVID harm.

That's given a whole nother level of business forecasting in due diligence. And then it's all also interesting to note, Elana, that service providers, the accounting firms, the law firms, the environmental firms are all so busy because of the large number of deals that are out there now trying to be done, that it takes more time to complete due diligence.
EMS: Russ, as a follow-up, how could M&D companies best prepare to sell to a PE firm?
RG:The way to prepare is really get your files in order, really have your diligence materials available, understand and break down where revenues have come from, and even more importantly, really break down the cost of goods and what that means for margins. Margins are a key metric when we look to do valuations. The more data behind the headline margin, the better it is for a company when they're getting ready to sell to provide.
EMS:Russ, I think we would be remiss if we failed to at least briefly discuss ESG, which continues to become more prominent in evaluating companies. I'd just like you to share a few brief thoughts on how Altus is approaching this.
RG:We come at this ESG discussion from a little different way. We've always looked at businesses, the ones we want to invest in, to be sustainable, to be there for the long-term, because we're eventually going to resell in five to seven years. What does that mean? For our strategy, what it means is we're going to invest in companies that are good corporate citizens, have really good management teams, are thinking how are their products going to be here, not only today, but in five or 10 years.

I think if you come at that and look at the quality of people and the type of products they're going to be, that's the way to look in my view in the lower middle market at this ESG discussion that's going on now.
EMS:Russ, you provided so much valuable insight with us today, and I just wanted to see if there are any other final thoughts you would like to share.
RG:Elana, I'd like to reiterate that I believe US manufacturing is in a great spot now. The need for reshoring is just going to continue for many reasons that we all know about. The opportunity for sellers is to bring in private equity who can provide fresh capital, which really will embrace and enhance automation and provide the tools for these smaller companies to be able to use robots and software, therefore becoming a lot more efficient.

Taking market share back to the US and growing their business for the future. That's why we at Altus are continually to be excited for the opportunity to invest capital into US-based manufacturing companies to grow their businesses and to compete worldwide.
EMS:Russ, I wanted to thank you so much for sharing your perspective with our listeners.
RG:Well, thank you for having me.
EMS:And thank you for listening to the EisnerAmper Podcast Series. Visit for more information on this and a host of other topics. Join us for our next EisnerAmper Podcast when we get down to business.

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Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.

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