The client is a large manufacturer of industrial process control gear. The client lags several international competitors in China, and the gap is widening. The client has made a strategic decision to substantially expand its footprint in China, focusing on Western manufacturers with China operations who specify Western gear for their facilities.
Clarity assembled a project team consisting of US and China resources, including our Tianjin based strategic partner and its extended expert network and Guanxi. Using criteria defined by the client, Clarity identified over 100 private and state owned Chinese companies that might be suitable partners. Based on this Phase One identification work, the client selected over 50 companies that warranted closer analysis. Our Tianjin partner conducted on-site interviews with senior executives at all 50 prospects, providing detail on their operations and strategies as well as their specific attitude toward partnership opportunities. By proceeding to establish loose partnerships with some of these companies and more formal arrangements with others, the client substantially improved its exposure to new business opportunities.
The client manufactures truck and automotive components. One of their units produces suspension components based on a design concept that is rapidly being displaced by an alternative approach. While this mature product category may never disappear entirely, the downward pressure is exacerbated by the presumably superior cost structure of a Mexican competitor.
Clarity was engaged to develop a detailed cost benchmarking study comparing its own operations against the Mexican competitor. By developing estimates for the key contributors to cost, including labor, materials, and utilities, Clarity was able to develop a reasonably accurate picture of the severity of the client’s cost structure disadvantage. Based on this input and the broader market factors, the client elected to divest the unit.
The client manufacturers HVAC equipment which is sold through industrial distribution. One distributor represents the majority of revenues.
Clarity conducted a broad analysis of the category, including research on the manufacturers of relevant equipment and leading industrial distributors. Our research identified shifts in positioning and competitive strength among both factories and distributors. These findings led to the client’s tactical decision to pursue expanded relations with one distributor and the establishment of a new relationship with another. The specific approaches to these distributors reflected new intelligence about market trends, competitor activity, and the current Go To Market orientation of the relevant distributors.
Clarity sells a domestic foundry during the recession of ’01-03
The client operates two domestic investment casting operations, both of which run a combination of captive and external parts. The client is carrying excess capacity due to the recession and elects to divest one of its foundries.
Clarity’s analysis of the situation revealed that investment casting continues to move off shore and the domestic market has serious over capacity despite many recent foundry closings. Clarity identified two types of strategic buyers; competing foundries (preferably investment casting but including sand casting and other) and domestic manufacturers which currently outsource their substantial volume of investment castings. Despite our efforts to create an auction environment, the gravity of factors working against this deal forced Clarity into a case by case approach. Each prospect required active hand holding and creativity to model a framework that might justify the deal. The ultimate buyer negotiated contractual requirements for the client to retain certain casting runs from his own operations in the plant for a specified time. Clarity also facilitated consensus among several state and local economic development offices to amend existing debt structure to transfer low and zero interest debt to the new owner. In the end, Clarity completed a deal with a prudent buyer under difficult circumstances, preserving the client’s capital and scores of local jobs.
The client is a manufacturer of on-highway transport equipment. They have reached Letter Of Intent on the acquisition of a niche trailer company.
Clarity was engaged to produce an acquisition due diligence study. The scope of our work included direct interface with the principals of the acquisition target. As stipulated in the LOI, the seller was required to supply customer information in support of a 3rd party market study. Clarity carefully presented our research methods and supplied an Interview Guide in an effort to allay the seller’s concerns about this study. Every seller, and particularly principals of private companies, are very nervous about the rumor mill and other negative impact to their business if a deal is not consummated. Clarity proceeded to call on current customers and identified historic customers. Our research revealed serious goodwill and reputation problems that ultimately killed the deal.
The client manufacturers OEM compatible replacement parts and provides associated field service for mission critical process control equipment. The client is considering the acquisition of a regional field service company which also specializes in maintenance and repair work for the relevant process control equipment.
Clarity helped management to justify the deal. This work included both market and financial due diligence, as well as facilitated strategic planning to define the top level integration activities in the event of a successful deal. This approach allowed Clarity to support the Go/No-Go decision while in parallel establishing a range of operational adjustments and marketing initiatives required to extract value from the merger. By modeling an integrated future state of the expanded company before completing the deal, the client was able to test certain assumptions regarding its justifications for the deal. Most notably, the strategy included a flawed assumption that the existing management and channel partnerships of the target company could be effectively pointed at specific new customer types. This problem was exacerbated by customer research which showed limited receptivity to the envisioned value proposition to be used among targeted new customer types. Projected new customer revenues were reduced while the anticipated cannibalizing of existing customer revenues was increased, thus killing the deal.
Clarity was enlisted to identify acquisition prospects according to several defined criteria, including size, products, and market served. Our profiles included a preliminary assessment of each prospect’s orientation toward being acquired. This Acquisition Prospect Development (APD) work had been preceded by a Clarity study of the overall target market, in terms of size, growth, trends, substitute products and other considerations that would indicate it attractiveness to the client.
Clarity presented our findings to management, informed by our recent market study and knowledge of the relevant trade. We were able to advise the client on the underlying synergies and how each viable prospect mapped against the objective of entering this complementary market through acquisition. In Phase 3, Clarity worked under a buy side success fee arrangement where all due diligence fees would be refunded against our success fee if a deal could be completed with one of the defined prospects. Clarity leveraged our intimate understanding of the market to advance the dialog with the acquisition candidates, successfully facilitating a deal.
Clarity’s client is a manufacturer of precision micro metal bellows using a proprietary electodeposition process. The client recognized a potential growth avenue in an adjacent market, using precision edge welding methods to fabricate micro metal bellows with a different set of properties and key applications. Clarity was enlisted to produce a market study on the Edge Welded Metal Bellows market, evaluating key market dynamics such as market size, application segmentation, customer requirements, and potential synergies with the client’s established ED bellows business.
Clarity presented our findings to management and facilitated consensus around the strategic merits of entering the EWMB market and the set of potentially viable acquisition prospects. In Phase 2, Clarity worked under a buy side mandate to source targeted add on acquisitions. We leveraged our intimate understanding of the market and an ability to enunciate our client’s strategic rationale for entering the market to advance the dialog with several approved acquisition candidates. This process yielded a completed deal that has delivered excellent results over time.
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Peter Salmon joins Clarity
Peter Salmon contributes deep domain expertise in food science to the Clarity team. He is adept at working with manufacturers on value creation initiatives involving innovative and healthy foods, beverages, dietary supplements and nutritional additives.
May River Capital, LLC
May River Capital was formed in 2012 by Chip Grace, Dan Barlow and Steve Griesemer. Prior to forming the firm, Chip and Dan each spent over a decade with operationally focused PE firms, Wynnchurch and Valor Equity respectively.