Equity firm specializes in building up acquisitions
Pfingsten Partners LLC isn't a conventional private equity firm.
The Deerfield company does more than buy companies for a cheap price, cut operating costs and turn around and sell them at a profit. Instead, Pfingsten focuses on improving a company's management.
Happ Controls Inc. is an example of Pfingsten's work. The Elk Grove company, which makes parts used for slot machines, video game machines and other devices used in the gaming industry, wanted to expand beyond North America. It struggled to determine how to do so, but Pfingsten helped Happ accomplish that goal.
Pfingsten bought Happ in 2003 and purchased Netherlands-based Suzo International in 2004. The firm merged the two companies into Happ Controls LLC at the end of 2004, giving the new company, known as Suzo-Happ Group, access to markets in more than 80 countries.
"We wanted to go beyond North America, but as a family business, we lacked in ideas of financing and strategic vision," said Tom Happ, president and son of the founder of Happ Controls.
It's easy for many middle-market companies "to think regionally or nationally, but not globally," said Tom Bagley, the senior managing director of Pfingsten. In addition to Happ, the firm has purchased 16 other companies, taking them from small entrepreneurial origins to a more professional, team-based management.
Pfingsten usually holds and nurtures an acquired company for five to seven years, pumping in capital and carefully training the management team. After acquiring Happ Controls, Pfingsten Principle John Starcevich worked full time at Happ for more than a year. Most executives from acquired businesses opt to stay once a deal has closed.
The approach has paid off in the case of Suzo-Happ. The company saw a more than $1 million earnings increase in 2006 by outsourcing most of its manufacturing to China.
Pfingsten's executives start their homework long before the firm acquires a business. Specific steps to grow an acquisition are identified, from renegotiating a contract to reorganizing a factory floor, Bagley said.
"Pfingsten's strategy was to do the gaming parts production and distribution worldwide," Suzo-Happ CEO Chuck Turnbull said. "So far, we have integrated purchasing, manufacturing, finance and management all to some extent, and the integration will continue."
Suzo-Happ was a bit of an exception when it came to executives. The company was growing rapidly outside of North America, and Turnbull seemed ideal with his experience in managing private and large public companies, as well as forming companies with private funding.
"[Suzo-Happ] needed someone who had more international exposure" than the chief executive who had been running the company, Bagley said.
Prior to joining Suzo-Happ, Turnbull was president for a Chicago-based public international company, whose sales surged to $450 million from $200 million within three years. That company, when it had $200 million in sales, was similar in size to Suzo-Happ.
From a decade of experience in outsourcing to Asia, Bagley developed an "Asian strategy" for Pfingsten. With the support of its Hong Kong office, the firm has been able to fully develop sourcing capabilities in Asia, as well as sell products and have so-called added-on acquisitions there. For example, the Suzo-Happ's products are sold in Macao, China, the largest regulated gaming market in Asia.
"In today's worldwide competitive economy, it's necessary to maximize cost-effectiveness, exploring combined purchasing and foreign sourcing," Turnbull said. "Pfingsten pulls together small companies with similar needs to form larger platforms."