Case Studies

Medical Manufacturing — Merchant Banking

SITUATION OVERVIEW

In 2004, a middle market private equity sponsor acquired a $30 million contract manufacturer of precision molded elastomeric components for the medical industry in partnership with another private equity fund and management. As the lead director for the sponsor, Carbide Partners’ Managing Partner, Mark Kammert, negotiated the terms of the acquisition and raised the initial senior debt, mezzanine and equity co-investor financing for the transaction.

CHALLENGES

Although the company enjoyed a strong competitive position and close relationships with its customers, the business faced several strategic challenges:

  • Over-reliance on a small number of major medical OEM customers
  • Under-investment in capital equipment and need for an additional manufacturing facility
  • Concentration by the sales force on maintaining relationships with existing customers, rather than generating new business
  • Focus on a narrow range of product capabilities

RESULTS

Working in partnership with the equity co-investor and management, Mr. Kammert led a variety of initiatives to strengthen the company’s business in the years following the initial transaction:

  • Recruited a CFO and, eventually, a new CEO
  • Diversified the customer base through four complementary acquisitions
  • Strategically re-positioned the company’s business from a contract manufacturer of molded rubber parts to a full-service medical outsourcing business, with new capabilities in plastic injection molding, rapid prototyping, tubing extrusion, and design and assembly of complete medical devices
  • Invested capital in new greenfield manufacturing capacity in the company’s core rubber molding business
  • Expanded the company’s sales force through the recruitment of new direct salespeople and manufacturers’ representatives

In 2008, after the company’s revenues and EBITDA had more than tripled, Mr. Kammert led a corporate sale process that culminated in the sale of the company to a strategic corporate buyer at a high valuation multiple. The company’s equity investors realized large gains on their investment, and over 60 of the company’s employees shared in the profits from the sale through their participation in an equity incentive plan.