HBM was recently interviewed by Middle Market Growth magazine in a special webinar entitled “Manufacturing Through a Private Equity Lense” which featured HBM’s CEO Mike DeCola, as well as the CEO of HBM’s portfolio company Tru-Flex, Gregg Notestine.
The discussions centered around Tru-Flex’s focus in the automotive aftermarket and how HBM’s long-term capital approach to investing provided Tru-Flex with the ability to capitalize on its long-term strategic vision. The conversation, moderated by Middle Market Growth Editor-in-Chief, Deborah Cohen, focused on three main themes: 1) the HBM / Tru-Flex relationship, 2) why HBM and Tru-Flex made significant investments into the automotive aftermarket and 3) the state of manufacturing in the U.S., with a particular emphasis on the challenges Tru-Flex faces with respect to labor.
HBM acquired Tru-Flex in 2013 from a private equity firm. Mike DeCola explained, “Tru-Flex was a great opportunity in a niche market.” HBM recognized growth prospects that could help Tru-Flex achieve its goals from a capital perspective as well as an infrastructure perspective (i.e., technology, human resources and strategic planning). Mike added, “It was a great partnership from the beginning.”
Gregg’s sentiments echoed Mike’s assertions. Gregg and the Tru-Flex management team knew they needed significant investment to grow the business and to satisfy the customer base. Additionally, they needed management talent and personnel to fill vacancies in their future business divisions, manufacturing plants and warehouses. With HBM’s backing, Tru-Flex has been able to add a number of sites, complete a bolt-on acquisition and expand into Europe all within a short period of time. “With HBM’s support and direction, realizing our long-term strategic vision was possible,” said Gregg.
Tru-Flex’s foray into the automotive aftermarket was part of the long-term strategic planning process. The management team saw an opportunity in the market that could be integrated across their manufacturing process and customer base. With HBM’s backing, Tru-Flex felt confident venturing into new areas. For example, warehousing and shipping were logical areas for Tru-Flex to expand its core competencies. In addition to these physical expansion opportunities, Tru-Flex had an immediate need to hire a general manager, dedicated sales people and warehouse workers. “Having capital was critical,” noted Gregg.
In order to accommodate their global and growing client base, Tru-Flex made the strategic decision to shift their aftermarket sourcing from the U.S. to Poland. With capital provided by HBM, the 2014 expansion into Poland occurred quickly after HBM’s acquisition of Tru-Flex. The plant in Poland was opened and operational by mid-2015. “It happened quite fast,” said Mike. “We saw the customer and growth opportunities and didn’t want to miss the window.”
Tru-Flex’s investment in Poland went well from an operational perspective; however, the management team is still focused on reaching the expectations set out in the original strategic plan. Despite any shortcomings relative to the original strategic vision, both Tru-Flex and HBM remained committed to the expansion and are happy they made the move so quickly. “It is a nice, niche market located in Eastern Europe. We are confident in the long-term growth prospects of this investment,” said Gregg. “As environmental regulations are implemented in various countries, there is an opportunity for Tru-Flex. Our product doesn’t reduce pollution, it monitors it; therefore, manufacturers are required to install our product in their vehicles.”
“We didn’t make a knee jerk reaction simply because the strategic plan didn’t work out the way we envisioned,” stated Mike. “We did what all good business leaders do. We took stock of the situation, improvised and focused on the long-term prospects because they looked strong.”
Through its short history, HBM has established itself as a long-term partner that will invest both capital and resources to help its companies achieve their potential. Initially, when HBM acquired a company, it operated each portfolio investment as a unique entity with no crossover of talent or knowledge. HBM soon realized that a more formidable and successful approach would be to encourage collaboration across its business leaders. For example, each year, the management teams from HBM’s companies are asked to present their strategic plans in a group setting. The result is an open dialogue that allows the business leaders to leverage the knowledge and ideas of their peers.
Talent is another area where the management teams across HBM’s portfolio work closely together. For example, Tru-Flex may have a high potential leader whom they feel is ready for the next move in his/her career. However, the timing may not be right within its own infrastructure. In this instance, Tru-Flex is incentivized to look within HBM’s portfolio companies for suitable opportunities that fit the leader’s talents. The management teams understand that it is better to keep talented leaders within the HBM umbrella than to lose them to an unrelated venture. “It is cost effective to share services and to develop potential leaders for future roles within the company,” said Mike.
Both Mike and Gregg are optimistic about the state of the U.S. manufacturing industry and agree there is a risk that there isn’t enough talent to fill industry needs. “The labor issue is a widespread concern,” explained Mike. “Schools are not doing a good job preparing students for manufacturing roles. Manufacturing can be a lucrative career for those with the right skill set.”
Gregg added, “Due to the lack of a skilled labor force, manufacturers must become creative. They either collaborate with a community college to develop training programs, or they develop a training program internally.” It is clear that there is a supply problem across manufacturing. Manufacturers tightened their belts during the financial crisis and now that the economy is improving, capacity is not in place. Raw materials are in short supply. Both Mike and Gregg agree that this dynamic will change given current economic indicators. “People are feeling confident on where the economy is going,” said Mike. “It [the economy] is on an upward trajectory, and I think manufacturing is going to lead.”
We invite you to hear the thought provoking discussion on the automotive aftermarket, the state of the U.S. manufacturing industry and how HBM’s investment approach helped Tru-Flex implement its long-term strategic vision.