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Portfolio Update

Winter 2012

TH E G ROWTH I N DUSTRY OF TU R F CAR E S U PPLY 路 STEADY HAN D ON TH E TI LLE R AT PB H MAR I N E S U PPLY CHAI N SOPH I STICATION WITH ALLIANCE E NTE RTAI N M E NT

Execution


Copyright ©2012 Platinum Equity Advisors, LLC. All rights reserved. “Mergers. Acquisitions. Operations.” is a service mark and “M&A&O” is a registered service mark of Platinum Equity, LLC. Other trademarks and service marks belonging to affiliates of Platinum Equity and appearing herein are the property of such affiliates. It is not Platinum Equity’s intention to claim as our own any third-party trademark or service mark that may appear in this material.


Execution

W I N T E R 2 0 12 I S S U E O F Q T H E P L AT I N U M E Q U I T Y P O R T F O LI O U P DAT E

At the heart of the companies in the Platinum Equity portfolio lies a relentless drive toward executing on operational strategies. From implementing new systems at an established business to building a brand from the ground up, the ability—and resources—to execute is a hallmark of the Platinum portfolio.

Briefly

Lately

Four new additions to the Platinum portfolio.

Growing the nationwide business of grass seed and fertilizer maker Turf Care Supply, Platinum Equity relies on the knowledge and insights of a seasoned management team.

A victory lap in Abu Dhabi for Wheel Pros. Providing Schutt Sports gear for a new football league in India. Sizing up the cleanroom at Truesense Imaging.

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« After welding a football helmet face guard together, an employee at Schutt Sports in Litchfield, Illinois trims off the steel wire ends. Photograph by David Harrison

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10 Operationally

Photographically

For three decades, Alliance Entertainment has distributed music, film, and game products throughout the U.S. An illustrated look at the company’s sophisticated, precise supply chain.

A tour of the manufacturing facilities in Flippin, Arkansas and Cadillac, Michigan where fishing and recreational boats such as Four Winns, Ranger, Glastron, and Wellcraft are made.

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10

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AB O UT P LATI N U M EQ U ITY:

Platinum Equity specializes in closing complex acquisitions across diverse industries. Our deep capital resources enable us to consider a wide range of deals; our M&A teams mitigate transaction and transition risks to the benefit of corporate sellers, their employees, customers, and suppliers; and our operational expertise enables us to see opportunity where others may not. We are an acquirer that partners closely with management teams to create innovative solutions to complicated financial and operational scenarios. Since our founding in 1995, we have completed over 130 acquisitions with some of the world’s most respected companies. www.platinumequity.com

C OVE R I LLUSTR ATI O N BY LAU R I E R OS E NWALD, R OS E NWO R LD.C O M


This Issue

Platinum Equity portfolio operations span the globe, serving customers in a diverse range of industries. Portfolio companies in this issue of Q include:

Schutt Sports A major sponsorship deal has U.S.-made gear protecting players in the new Elite Football League of India.  PAGE 4 Litchfield, Illinois

Ryerson

PBH Marine Group

Turf Care Supply

The steel products distributor provides materials that are used in dozens of common household applications.  PAGE 5 Chicago, Illinois

A suite of recreational and fishing boat brands remaining competitive through quality design and engineering.  PAGE 10 Cadillac, Michigan and Flippin, Arkansas

A management team successfully meeting the challenge to diversify its company’s customer base.  PAGE 6 Brunswick, Ohio

NESCO

Alliance Entertainment

Truesense Imaging

Wheel Pros

One of the largest utility equipment fleets in North America serves the continent’s complex electrical grid.  PAGE 5 Bluffton, Indiana

Winning new distribution contracts and serving top e-commerce retailers is part of an evolving strategy.  PAGE 8 Sunrise, Florida

Extraordinary cleanroom measures help keep Truesense’s manufacturing enviroment pure.  PAGE 5 Rochester, New York

Headquartered in Denver, the distributor of wheels and aftermarket auto accessories wins at the Gulf 12.  PAGE 4 Abu Dhabi, U.A.E.

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Next Issue If you have comments, tips, or story ideas for the next issue of Q, please drop me a note: cittner@platinumequity.com —Charlie Ittner, Director Office of the Chairman

From the Desk of Bryan Kelln

Letter from the President of Portfolio Operations Fundamentally, our success in 2012 and beyond will come down to the same essential imperative: our ability to execute. It’s a critical factor that has always defined Platinum Equity, our portfolio companies, and our employees. Together we work hard every day holding tight on costs, launching branding campaigns, implementing ERP systems, integrating add-on investments, streamlining processes, improving quality, developing new products, and seizing on opportunities to improve our businesses—regardless of market conditions. All those efforts require an unwavering focus on execution. Execution means digging deep into the details. It means acting on plans and focusing on speed and intensity. It means doing what we said we would do, making mid-course corrections, and exceeding each other’s expectations, every day. It doesn’t mean we’re always right. It means taking some risks and recognizing errors, then switching gears quickly if things don’t go as planned. It means rolling up our sleeves and redoubling our efforts to get it right the next time. We win not because we’re always right. We win because we build teams with passion for accountability and results—we get it done. We find a way. The year ahead is filled with opportunity for our firm, our companies, and our employees. Together we have the resources, the talent, and the drive to succeed. How well we take advantage of that opportunity will come down to one thing: how well we execute.

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NESCO rents the boom trucks, auger drills, and other specialized equipment needed to maintain, repair, and rebuild the complex North American power transmission and distribution grid. With one of the largest utility equipment fleets in North America, NESCO serves its customers from thirty-two locations. Active Aero Group provides expedited transportation and logistics management for customers faced with Four recent additions immediate transit needs. For example, to the portfolio. a manufacturer running short of a key part needed in its process might turn to Four companies joined the Platinum Active Aero Group for expedited ground, portfolio recently from the manufac- air, or hand-carry transit services, all turing, logistics and distribution, and tracked by the company’s sophisticated equipment rentals sectors. Active On-Demand technology. Truesense Imaging, formerly a diviServing the global automotive market, sion of Kodak, manufactures image Diversified Machine, Inc. creates highsensor devices. These sensors—similar quality, light-weight parts critical to the to but more sensitive than those found auto manufacturing industry. DMI’s in consumer digital cameras—serve a global operations include machining wide range of applications from preci- and assembly plants, aluminum and ducsion manufacturing inspection to digital tile iron foundries, engineering design radiography, satellite imaging to traffic and testing, and full-service supplier monitoring and security. capabilities.

Welcome to the Portfolio

manufacturing »

American football kicks off this year in India, home to 1.2 billion people and a growing economy. Schutt Sports will have the players covered as they take to the gridiron. In a major sponsorship deal, Schutt will provide its U.S.-made helmets, face masks, and pads to Elite Football League of India players.  ore on the Elite Football League M of India: efli.com

automotive »

Victory Lap Wheels from Wheel Pros carried Italian racing team AF Corse across the finish line at the inaugural running of the Gulf 12 Hours in Abu Dhabi. The endurance race was won in its final 18 minutes by AF Corse driver Marco Cioci at the wheel of a Ferrari GT3 when he edged out an Audi drvien by Ryan Dalziel. “It’s exciting to be involved with AF Corse,” said Wheel Pros vice president Jody Groce. “Relationships like this give our products visibility and win customers.” More photos of the Gulf 12 race: bit.ly/WheelPros

Portfolio Leadership Views from the Executive Office

Roch Lambert, President, Four Winns/Glastron/Wellcraft The way to reignite consumer interest, according to Roch Lambert, president of the Four Winns, Glastron, and Wellcraft boat brands, is through design and engineering. The strategy is gaining recognition: the redesigned Four Winns S215 model was awarded European Boat of the Year at a gala event in Düsseldorf on January 21— the only American brand to be recognized. “This award endorses our belief that design and engineering matters to consumers,” said Lambert. “Creating award-winning products sets our brand apart from the rest.”

More on the award: bit.ly/fourwinns 4 platinum equity — q

Photo: John Dagys

Michael Dorah, Vice President, Acument South America With remarkable speed, Acument recently shifted its São Paulo manufacturing operations from an antiquated facility to a new, process-designed greenfield facility in Atibaia, about an hour away. “The Atibaia facility is the result of a BRL44 million ($25 million) capital investment,” said Dorah. “It’s an incredibly impressive facility that positions us as a premier provider for our automotive customers operating in Brazil.”


Briefly products »

Supporting Roles Companies that make high-profile products such as cars or appliances are easy to recognize in daily life. But what about the products used to build those cars and appliances? Four Platinum companies whose products may be in your own home, office, or garage:

Beach Sand 100µm Bacteria 2µm

Spider Web 7µm

Red Blood Cell 10µm Strand of Human Hair 50µm

Home: KEMET With capacitors used in any product that carries an electrical current, it would be nearly impossible to find a home that doesn’t have thousands of KEMET capacitors—some flatpanel TVs have more than 3,000, while some smartphones contain over 700. The company shipped 35 billion capacitors in 2011.

Maximum airborne particle size in a Class-10 cleanroom ≥0.5µm

technology »

Pure and Clean Kitchen: Ryerson Among thousands of metal products in your home that may have come from Ryerson (including pipes, valves, roofing, and other building products), Ryerson provides stainless steel sheeting that faces many modern kitchen appliances.

Office: USRobotics The brand synonymous with dial-up modems now manufactures a line of tablet computing accessories and USB 3.0 card readers, products that keep USRobotics at the forefront of next-generation computer products.

Garage: Acument An integral supplier to nearly all major automakers, Acument makes the fasteners that hold cars together. Working closely with its customers’ product engineers and designers, Acument creates custom fasteners that meet exacting specifications.

Cleanrooms are classified by the quantity and size of airborne particles per cubic foot of air. To manufacture its delicate image sensors used in industrial, medical, photographic, scientific, and security applications, Truesense Imaging relies on a cleanroom at its Rochester, New York facility that is almost totally free of impurities. The facility’s air flow and filtering systems ensure that each cubic foot of air contains fewer than 10 particles

larger than 0.5 micrometers—one-halfmillionth of a meter, or smaller than the diameter of a human hair, a red blood cell, or bacteria. By comparison, typical office buildings have between 500,000 and 1,000,000 sub-micrometer particles per cubic foot of air. These extraordinary measures to control Truesense’s manufacturing environment are critical to preventing costly downtime that would be caused by even minor contamination.

portfolio company numbers » thousand square feet are occupied by the new Ryerson Salt Lake City service center. The facility houses state-of-the-art steel processing equipment, serves as Ryerson’s Western U.S. hub for long products, and provides same-day service for customers in the Salt Lake City area. million tons of commodities are moved annually by American Commercial Lines’ barges. Founded in 1915, the company ships grain, minerals, and petrochemicals over 12,000 miles of the U.S. inland waterways. The company also has a growing business in marine manufacturing services. hundred units are available for rent from NESCO. The company’s nationwide asset inventory includes bucket trucks, digger derricks, truck cranes, pressure diggers, and other specialized equipment used to build and maintain the North American electrical transmission and distribution infrastructure.

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manufacturing »

Growth Industry To grow the business of grass seed and fertilizer maker Turf Care Supply, Platinum Equity turned to the knowledge and insights of a seasoned management team. Turf Care Supply manufactures chemical fertilizers and blends grass seed at eight facilities across the U.S. When Platinum acquired the business it was a division of a larger company and had little operational infrastructure. The challenge for Platinum and the management team was to not only nurture a fully functioning company, but to also systematically gain new customers. Platinum saw opportunity when LESCO (now John Deere Landscapes) decided to divest its manufacturing division. LESCO, a distributor of products used by landscape professionals—equipment, seed, fertilizers, irrigation products, and related items—decided to exit the manufacturing portion of its business. The company sought a buyer who would ensure the division’s stability and a steady supply of the fertilizer and seed products on which LESCO relies. Platinum Equity acquired the division, renamed it Turf Care Supply Corporation, and built a fully functioning company structure. The supplier agreement with LESCO provided most of Turf Care’s initial business: manufacturing the seed, fertilizer, and ice melt products that LESCO distributed. With this secure revenue source, Turf Care recognized it could expand its customer base while still meeting LESCO’s needs. Part of the Platinum portfolio for nearly seven years to date, Turf Care management has successfully met this challenge and grown the business by diversifying its market while reliably supplying LESCO. Turf Care CEO Bill Milowitz (pictured) and his team are delivering results. 6 platinum equity — q

To gain insight on what went into growing Turf Care Supply into a fully functioning business, Q spoke with Turf Care’s CEO, William Milowitz.

below Some of the granular fertilizer products made by Turf Care Supply for use in professionalgrade applications such as golf courses and athletic fields.

What did Turf  Care consist of when it was acquired? Turf Care Supply was a collection of assets, not yet a business, per se, as the assets had operated under their former owner, LESCO. The acquisition was of manufacturing facilities, distribution facilities, and the people who run them. As a business goes, there were no key operational functions on day one. What process went into building out those functions? Platinum’s transition group took on a lot of the responsibility. They set up many of the necessities required to turn a business’s lights on, so to speak, such as leasing office space, hiring additional management, and fulfilling


Lately

treasury, financial, and legal functions. Once the essentials were in place, the Platinum transition team handed the business off to management, and we all worked together to set an actionable strategy.

How long does it take to put that initial strategy in effect? Usually it might take you through the first 90 or 100 days of operation. What priorities should we focus on? What resources do we need to execute them? What do we need to put the business on a stable track? Who were Turf Care’s customers? Initially, we primarily served our former parent, LESCO, through a supply agreement. We

put in a lot of work to diversify our market by putting together a sales team, creating a line of products, and building the Turf Care brand. We leveraged our capabilities well and began to win new customers based on the quality and reliability of our manufacturing. At the same time, we continued to deliver on LESCO’s requirements.

Has your initial management team stayed with you? Senior management’s tenure here is about as long as we’ve been in business, I think because of our strong emphasis on people and on creating a positive, pleasant place to work. Many people at our facilities worked for LESCO for 10, 15, even 20 years—well

before Platinum. It was important for us to keep people with experience and great industry knowledge.

How involved is Platinum in Turf Care’s business today? Our job here is to execute the plan we’ve worked out with Platinum. They don’t hold our hand every day, but they do get involved when they need to. What they’re most interested in is that my team is executing on strategy. That’s why they have us.

Photograph by Todd Westphal


logistics & distribution »

Strong Allies Alliance Entertainment distributes so many entertainment products that chances are they had a hand in distributing the Wilco LP you picked up at the corner record shop, the Harry Potter DVD you ordered on Amazon.com, or the Cat in the Hat Blu-ray Disc you bought at Barnes & Noble for the kids. In September 2010, Platinum acquired Alliance Entertainment in a joint venture with The Gores Group. For three decades, the company has distributed music, film, and game products throughout the U.S., handling over 250,000 unique titles from smash hit albums, blockbuster DVDs, and chart-topping game titles to back-catalog items and niche titles in categories such as children’s entertainment. The fastest growing arm of Alliance’s business is its e-commerce fulfillment service. The company inventories, picks, packs, and ships individual online orders directly to consumers on behalf of major online retailers such as Amazon, Barnes & Noble, and Best Buy. These retailers rely on Alliance for product availability, shipping, and returns. Alliance also distributes product directly to many retail chains such as Barnes & Noble, Miejer, and Kmart, as well as to Wal-Mart and Target through a third party distributor. Another of Alliance’s services is managing inventory for a wide range of retailers. The company handles the assortment, quantities, promotional aspects, and replenishment of entertainment titles for mid-size stores, such as Miejer, H-E-B, and Kmart who rely on Alliance’s market knowledge and consumer demand to keep shelves stocked with titles that bring customers in the door. Alliance’s hallmark is its accountability for an order from warehouse to customer. Responsibility for keeping its customers’ customers happy is a charge that Alliance takes seriously, one that has helped it win an increasing number of major distribution accounts. Alliance’s market has changed dramatically with the arrival of online entertainment delivery, but the company is actively creating new opportunities that leverage its capabilities and experience. The company’s sophisticated systems readily handle direct-to-consumer distribution of virtually any consumer product, and a recently closed deal will have Alliance distributing computer electronics accessories for Platinum Equity company, USRobotics. Also, Alliance’s emerging manufacturing-on-demand services enable the company to press, package, and ship single copies of otherwise out-of-print products. Another evolution for Alliance’s business is successfully winning new distribution contracts with major studios. Faced with declining demand, studios and retail suppliers are consolidating their supply chains and turning to Alliance for distribution. “In 2011, we were named one of only two full-line wholesale distributors for Warner Home Video,” said Mike Davis, President of Alliance Entertainment. “The quality service Alliance provides for both vendors and customers means that we’re able to pick up this kind of premier business.”

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1. Alliance Entertainment’s 99.97 percent order

accuracy and 99.5 percent order completion rates begin the moment an order is placed. Alliance verifies each product a customer orders from Amazon, Best Buy, Target, or Barnes & Noble   in real time through Alliance’s sophisticated    inventory control system to ensure that an item is available and will ship on time.

5. Agreements with Alliance’s customers specify

when each package arrives at a consumer’s door or on a retail store’s loading dock. Alliance’s distribution functions are critical to its customers’ supply chains and the service they provide their own customers, a weighty responsibility that Alliance meets with each shipment.


Operationally

2. The order enters Alliance’s pick queue. Using

paperless RF technology, employees pick orders from racks of bins at the 400,000 square foot Alliance distribution center outside Louisville, Kentucky, centrally located and near the UPS air hub. An order might require a single CD for a consumer or several hundred titles to restock a retail store’s shelves.

3. High-speed labeling and sorting

equipment sorts up to 300 units per minute. This state-of-the-art automation system, a critical step in Alliance’s warehouse management system, ensures that orders arrive at the right big-box store, independent retailer, or online consumer.

4. Alliance ships about 100,000 packages

each day. Large orders, securely strapped for shipment, head to specific retail locations. For individual orders, Alliance offers custom-branded packaging so the order appears to have come directly from the online retailer where the consumer placed the order.

Illustrations by Eight Hour Day

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Photographically

manufacturing »

Steady Hand on the Tiller photographs by david harrison

The Platinum portfolio includes a suite of boat brands that are among the most respected in the boating world. One group, focused on recreational boats, comprises the Four Winns, Glastron, and Wellcraft brands, while another group focuses on fishing boats and includes the Ranger, Stratos, Champion, and Triton brands. With reduced consumer demand for discretionary purchases such as boats, all the boat brands in the Platinum portfolio have made decisive changes to establish new, post-recession operating models. Strategic new hires, updated business systems, and streamlined manufacturing have improved operations while intent focus on dealer networks has improved support for key sales relationships. The most important change across all the boat brands, however, has been a renewed concentration on product development. Design and engineering are driving the overhaul of each brand’s best-loved models, and world-class product designers are creating highly desirable boats that drive sales, and Four Winns’ recent Boat of the Year award in Europe is testament to the success of the new designs. In addition, carefully listening to customer feedback enables the brands to increase customer satisfaction with each model year. Until consumer financing thaws, boat sales as a whole will remain highly competitive. Revamped operating models, new manufacturing approaches, highly desirable product design, and realistic views of their markets will sustain each boating brand’s dealer relationships, consumer passion, and legacy for many generations of boat owners to come.

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previous spread At the manufacturing facility in Cadillac, Michigan, a finished Four Winns cruiser is buffed and polished for delivery. above left In the beginning, fiberglass is rolled and sprayed onto boat molds. above right A crane lifts a fully assembled boat toward a testing tank where all the boat’s components undergo quality control checks. bottom left Plastic patterns used to cut out wood and plastic finishing details. bottom middle A 775-pound Mercruiser inboard motor is hoisted into place. The boat’s wiring harness will then be attached and the engine will undergo a battery of tests in a testing tank. bottom right The Four Winns nameplate is synonymous with top-quality sport boats and cruisers, from its original fiberglass boats in 1962 to its revolutionary SL series introduced in 2008.

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top left A fiberglass shell is sprayed with a high-gloss topcoat in the facility’s paint room before further assembly. top middle Spools of thread in the upholstery shop. top right Finishing the upholstery on a bucket seat. Keeping each step of the manufacturing and assembly process in-house is an important operational advantage. bottom left Employees assemble wiring harnesses by hand to ensure quality. bottom right Boat hull and deck molds for the Ranger fishing boat line at the manufacturing facility in Flippin, Arkansas.

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Quoted The Platinum Portfolio Between the Marks

It’s a once-in-a-lifetime chance for a brand to get into a market with over a billion people and… to be a game-changing influence on the lives of young athletes. ROBERT ERB, CEO OF SCHUTT SPORTS, QUOTED IN THE DALLAS MORNING NEWS ON THE SCHUTT SPORTS SPONSORSHIP OF THE ELITE FOOTBALL LEAGUE OF INDIA

Quark has shown it understands what publishers of all shapes and sizes need to meet the challenge [of the changing industry]. ADAM BANKS, EDITOR, MACUSER ON NAMING QUARKXPRESS 9.1 “PUBLISHING PRODUCT OF THE YEAR”

The move [is] an opportunity for us to invest in state-of-the-art printing and cutting and creasing technology… Capacity at the relocated site will be around 25% more than the current availability. TOM REID, CEO, CONTEGO PACKAGING GROUP, QUOTED IN PACKAGING EUROPE

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We find good people who enjoy working with us and share our passion, our energy, and our sense of urgency about everything that we do. jacob kotzubei, platinum equity partner

Jacob Kotzubei leads teams through the entire acquisition execution process, including diligence, valuation, contract negotiations and financing, and is a member of Platinum’s Investment Committee.

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Platinum Equity Q - Winter 2012 Issue