Larry Gies Jr.’s path to private equity began on the manufacturing
floor. That experience would turn him on
to a lifelong passion. In fact, he loved
it so much he vowed to run his own manufacturing
company someday.
As the president and CEO of
Chicago- based Madison Capital Partners, Gies has found
what he was looking for—and then some. He has led the acquisitions
of 19 manufacturing companies and presided
over numerous restructurings and transformations
of portfolio companies. Another way to
look at his experience is to count 12 successful
sales and five partial realizations to
date.
“Larry Gies is a genius company owner, not just a dealmaker,” says
Lawrence Golub, president of New York leveraged
finance firm Golub Associates Inc., which
has invested in Madison Capital’s deals.
While it buys and
sells companies like most buyout firms, Madison
Capital is a fundless sponsor that finances
investments deal by deal. Much of its capital
actually comes from Madison itself, plus a few loyal institutions
and former CEOs.
The firm has had a strong history in plastics
manufacturing, but its reputation derives
from its penchant for forming teams that
dive in to manage or help operate businesses
that then become all-consuming undertakings. “As operators, they are rock stars,” Golub
says.
Since inception in 1994, Madison Capital
has posted a net internal rate of return
of 90%, or 5 times its invested capital.
Those results have left the firm in very
good standing with investors.
“They really do an exceptional
job of improving operations—the magnitude and the speed with
which they do that has been extraordinary,” says Chris Dowd,
a managing director at Springfield, Mass.-based
Babson Capital Management LLC, the investment
management arm of Massachusetts Mutual
Life Insurance Co. Dowd says his firm has
co-invested in four companies with Madison
since 2002.
Gies grew up in a farm town two hours outside Chicago. He graduated
from the University of Illinois and took
his M.B.A. at Northwestern University’s Kellogg Graduate School
of Management with concentrations in strategic
management and marketing. He then joined
Deloitte & Touche. At one point he worked on behalf of the German
government, trying to market a high-tech
region in East Germany to U.S. investors.
But
while working for Chicago restructuring investor Michael Heisley,
the majority owner of basketball’s Memphis Grizzlies, Gies got a taste
for buyouts. Back then, he didn’t know it as private equity.
Heisley’s investment vehicle, Heico Cos. LLC, specializes
in turnarounds, mostly in the rust belt.
Gies says Heisley taught him much of what
he knows. “One day, I asked him what he thought if I were
to start my own firm,” Gies recalls. “He said to me, ‘Go
do it, kid.’ ” Gies adds, “He was probably relieved,
because I wasn’t the easiest person to manage.”
At Madison Capital, Gies isn’t
the only one with a manufacturing pedigree. Managing director Richard
Osborne formerly headed New York Stock Exchange-listed
Scotsman Industries Inc., a manufacturer
of commercial food equipment. CFO John Udelhofen
was CFO of the Willowbrook, Ill.-based Plastics
Group Inc. And senior vice president David
Ball came from numerous manufacturing concerns.
“I think that is why we have a hard time keeping people in the office,” Gies
says. “They all want to be on the
plant floor.”
He isn’t kidding. In May, Madison Capital acquired Germany’s
Mannesmann Plastics Machinery AG, the world’s largest manufacturer
of machinery for plastics and rubber production,
for about $900 million. Osborne now serves
as CEO based in Munich, while another principal
works directly for the CFO on certain projects
that will serve customers. At any one point
in time, Gies could be on a plane to Munich
or on his way back.
At API Heat Transfer Technologies
Corp., a Buffalo, N.Y.-based maker of industrial
heating products with about $100 million in annual sales, the growth
resulted from streamlined manufacturing,
new products and customers and new facilities
in China and in Germany. Madison Capital
bought the business from Danaher Corp. in
2002 for $66 million, then sold it to Audax
Group last June for an undisclosed sum.
Another
company, Dynisco LLC, a Franklin, Mass.,
maker of auto components that Madison acquired in 2000, was also
sold to Audax in 2004 as a much-improved business. At
the time of the purchase, Dynisco had not
introduced any new products over the preceding
three years. Growth and profits were lagging.
Madison helped jump-start global research
and development that led to new products.
The company made manufacturing leaner and
began sourcing from Vietnam and South Korea.
It also acquired complementary businesses.
Dutch
plastic injection maker Synventive Molding Solutions saw similar
changes after Madison bought it in 2003. Unprofitable
in North America and losing market share,
the company focused on the automotive industry
and improved production processes. It built
a facility in China and reorganized the
Asian sales program. Two years later, it
was sold for a profit to Advent International
Corp.
At MPM, which received $155 million in buyout equity, the hope
is that Madison’s manufacturing experts can apply their knowledge
of the plastics industry to strengthen the
company, which Gies claims has the best brands
in plastics machinery.
With all the heavy lifting,
Madison’s portfolio companies
boast more than 50% revenue growth on average
and Ebitda growth of nearly 200%. Madison
tries to position a business so that the next owner
may also profit from it, says Gies. That
may explain why Madison has acquired from
the same seller and sold to the same buyer
multiple times.
As he points out, “That’s the strongest
endorsement one can receive.”
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