Portfolio Company Series: Conversation with the CEO of HBM Portfolio Company Tru-Flex

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We recently interviewed Gregg Notestine, President and CEO of Tru-Flex, to understand their long-term vision and how HBM’s patient capital strategy has been key to helping the company reach their goals.

Founded in 1962, Tru-Flex began in the garage of an Indiana resident, manufacturing small diameter metal hose for gas cans. Over the next forty years, Tru-Flex experienced strong growth driven by the need for metal hose in a variety of industrial applications, and began to drastically expand its product line. In the mid 2000’s, Tru-Flex began producing hydro-formed metal bellows for use in diesel exhaust systems.  With the introduction of stricter emission regulations, the need for a leak-free exhaust solution had never been higher, and bellows sales quickly dominated.

Today, Tru-Flex is the number one supplier of hydro-formed bellows in the North American heavy duty diesel market, and expanded its European operations with a manufacturing plant in Poland.  Tru-Flex prides itself on delivering high quality exhaust solutions and responsive engineering support to its many customers.

Please introduce yourself and the circumstances around when you joined Tru-Flex.

I joined Tru-Flex in 2010 when TGP Investments LLC acquired the company.  They brought me in as CEO due to my tenured background as a senior executive within the emissions industry.  In 2013, the company was sold to HBM.

As part of their post-acquisition strategy, HBM retained the entire management team, given our expertise in the exhaust system industry.  They quickly began to assist us in implementing the long-term vision of the company.

When TGP began to look for an exit, were you involved in the selection process? What was it that set HBM apart?

HBM was a clear leader in the auction process almost from the beginning.  They set themselves apart by proposing minimal conditions to close, in particular, offering an all-cash at close scenario that was very competitive at the time.  But, more importantly to the leadership team, they positioned themselves as true partners, asking the right questions.  They also introduced the enterprise-wide solutions they offered their portfolio companies and their desire to think long-term.

An interesting side-note regarding their due diligence process:  They requested to actually speak with our top customers.  Normally, a seller might have dismissed this request as being too much to ask, especially as it related to customer relations through a delicate transaction.  But, we regarded this positively as it demonstrated HBM’s thoughtful approach to risk.  We saw it as a smart move.

Given that HBM’s investment management approach is applying a patient capital strategy, was this appealing to you and if so, why? Can you provide examples of how this has been demonstrated in your work with HBM?

Yes, HBM’s long-term capital investment approach was quite appealing.  We had big aspirations, but understood that the true benefit would not be realized in a typical private equity firm’s three to five-year time horizon.  We needed a long-term partner to see our vision and invest to help realize these goals and aspirations.  We have seen three specific examples that underpin why HBM’s strategy works.

First, Tru-Flex’s decision to enter the European market was one of our long-term strategies, and is a perfect example of HBM’s patient capital strategy.  We had been researching our expansion into Europe and believed that the time was right to take the calculated risk.  Not only did HBM agree to invest significant amounts of capital, they decided to move ahead extremely quickly after the acquisition. We believe that the investment would not have been made under a traditional private equity operating model as it was risky and the payoff would be too long.  HBM saw our vision of being a global manufacturer and assisted us in getting there.

Second, the decision to acquire Sacoma International in a bolt-on acquisition was another example of applying a long-term patient capital approach.  We liked Sacoma, their products, culture, location and customer portfolio and saw synergies on how the acquisition could benefit Tru-Flex in the long-term.  Specifically, we envisioned a future need to sell Tru-Flex’s products to Sacoma’s strong customer base.  But, it was risky and the outcome was uncertain.  We did our due diligence and strongly believed the investment would payoff a decade from now. HBM understood this and made an additional sizeable expenditure.

Third, we looked to enter a market that we did not have previous experience in, but believed, after thorough due diligence, that it was a key strategic move to support our long-term vision. We, along with HBM’s support, made the decision to enter the automotive aftermarket – a non-tangential market.  After much research, we decided to build and launch a new plant dedicated to this market. We are in the advanced stages now of building that part of the business, and we are confident it will be a key value driver in the long-term.

HBM provides enterprise-wide support for its portfolio companies.  How has this impacted your business?

HBM provides three distinct areas of support:  Human resources, information technology and business development.  We find all three areas to be of enormous value to the growth of our business, for our people and accomplishing our long-term vision.

HBM puts significant value in developing our people – an attribute that we find great value in.  They support our employees on many levels including leadership training, compensation and overall development.  It has been my experience that a traditional private equity firm would focus on management team incentives, but not provide this level of support for the broader team.  HBM takes it head-on and looks for ways to add value, which is a key differentiator.

In addition, the support they have provided regarding IT solutions has been immeasurable.  We were looking to implement a ERP system at Sacoma – a daunting project in of itself, and one that we did not have familiarity with.  Mike Chill, HBM’s new VP of Technology, offered significant help drafting a project plan to implement the system most efficiently. After that experience, I saw the value in Mike’s role and began to envision additional cost savings through potentially standardizing hardware and software across the portfolio companies.  This out-of-the-box thinking is a true example of what sets HBM apart from traditional private equity firms.

Please comment on the overall cultural fit you have found with HBM.

Everyone here greatly enjoys working with HBM.  They are humble, respectful and always looking for a way to add value.  This is clearly demonstrated through their human resources efforts and collaboration with our managers, but also more broadly, with their enterprise technology solution.  We look forward to continuing our success alongside HBM.