Middle Market Growth - February 2014 by Association for Corporate Growth

Growth MIDDLE MARKET

Made in the

USA

The Revival of Manufacturing in America

A publication of

// FEBRUARY 2014

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EXECUTIVE SUMMARY PAM HENDRICKSON // ACG Global Board Chairman and COO, The Riverside Company

All Roads Lead to InterGrowth

ome fascinating stories about the manufacturing industry are shared in this issue, including Watermill Group’s successful investment in metal and plastic component fabricator Tenere,

Inc. and Huron Capital Partners’ heartwarming story about the acquisition of Northern Cap & Glove Manufacturing. These success stories are not an anomaly; the manufacturing sector is seeing a resurgence, particularly in the United States. ACG has been doing some manufacturing and building of its own, striving to make the international organization stronger, helping each chapter develop fully, and ensuring that meetings and events exceed expectations. Chief among those meetings is InterGrowth®, which takes place April 28-30 in Las Vegas. ACG has responded to members’ feedback to retool InterGrowth, promising your time will be well spent. We’ve created more networking opportunities and have even designed a way for registrants to reserve exclusive space for meetings. The InterGrowth Connect app will make it easy to find specific contacts and network. Find out who is selling companies and who is buying them, or who might have the perfect add-on. In fact, this could be the year of the add-on, as more firms recognize the remarkable growth path offered by integrating add-ons quickly and efficiently. Today, 80 percent of CEOs say growth is coming either from acquisitions or entering new markets, especially those in new geographies. Whatever type of deal you’re trying to do and wherever you’d like to do it, chances are you can find the right person at InterGrowth to help. It will be three days of exceptional dealmaking, networking and information sharing. When InterGrowth rolls around, an anticipated robust dealmaking environment will be in full force. Because 2013 saw fewer deals than 2012, the industry is poised for a return to “normalcy” in volume of deals. A continued favorable lending environment, coupled with corporate balance sheets being flush with cash, should make for a perfect storm of deal activity, especially for baby boomers waiting for just the right opportunity to sell their business. This is a robust year for ACG as well. ACG has done a number of its own international “add-ons” with chapter growth seen in the UK, Spain, Germany and beyond. The ongoing internationalization of ACG, illustrated powerfully by last year’s well-attended EuroGrowth meeting, is one of the many reasons members trust ACG to keep them abreast of the latest trends in our industry. I hope to see all of you at InterGrowth in Las Vegas! // Sincerely, Pam Hendrickson

WEDNESDAY, 26 MARCH 2014 TRANS-ATLANTIC SIMULCAST: LONDON–NEW YORK

INSIDE THE MIND of the LIMITED PARTNER II

What Are LPs Thinking About the

Evolving LP / GP

RELATIONSHIP

In the second annual trans-Atlantic simulcast of the Duane Morris LP Institute, originating from both New York and London, you will hear from leading authorities drawn from the entire investment decision chain—LPs, GPs, asset managers, placement agents, gatekeepers and advisors.

NEW YORK Registration and Lunch: 11:30 a.m. Program: 12:00 p.m. to 1:45 p.m. Convene Midtown West—NOTE UPDATED LOCATION 810 Seventh Avenue (between 52nd and 53rd Streets)

LONDON Registration: 4:30 p.m. Program: 5:00 p.m. to 6:45 p.m. Cocktail Reception to Follow. ETC Venues 200 Aldersgate (near St. Paul’s)

Click here to register. www.duanemorris.com

EXECUTIVE SUITE DAVID CHAVERN // Executive Vice President and Chief Operating Officer, U.S. Chamber of Commerce

DO YOU BELIEVE AMERICA IS UNDERGOING A MANUFACTURING RENAISSANCE AND WHY?

DC: Yes, and it is first and foremost a revolution in technology and productivity. From engineered biologics to big data, there is—and will continue to be—a vast leap forward in how products are designed, made and distributed. Aided by inexpensive energy, but potentially impeded by bad government policy, the technological revolution in manufacturing is here to stay. I don’t believe, however, that there will be a substantial renaissance in the kind of manufacturing people have nostalgia for—mass creation of low-technology goods using low or unskilled labor. The United States has no inherent advantages in that kind of manufacturing. We will, though, create jobs—good, high-paying jobs—but they will require high skills and the ability to adapt to rapidly changing technology.

HAT ROLE DOES THE MIDDLE MARKET HAVE W IN DRIVING MANUFACTURING GROWTH?

DC: Small to mid-sized companies will play a huge role in America’s manufacturing renaissance because technology will make scale continually less important. Innovation will be the winning attribute, not the ability to mobilize mass resources. Consider 3-D printing technology. Even if it doesn’t become like a Star Trek “replicator,” 3-D printing will foster an ever-growing emphasis on the value of design over production. I strongly believe that our coming technological revolution will, in almost all respects, be a friend to small businesses and entrepreneurship.

BIO //

DAVID C. CHAVERN is executive vice president and chief operating officer at the U.S. Chamber of Commerce. He is chair of the Chamber’s Management Committee and is responsible for day-to-day operations and long-term planning. Chavern also is founder and president of the Chamber’s Center for Women in Business.

IN WHAT SECTOR DO YOU SEE THE MOST INNOVATION AND WHY?

DC: You need to start with the fact that information technology and big data will allow every other sector of our economy to transform itself completely. Aside from those industries that are kept intentionally low-tech (hand-crafted goods, artisanal foods, etc.), I cannot imagine a sector of our economy that won’t be a “technology industry” within 10 years. How about driverless car technology for truck driving, or facial recognition technology for the bouncer at the local bar? Our entire economy is about to become defined by innovation. Continued on next page

EXECUTIVE SUITE DAVID CHAVERN // Executive Vice President and Chief Operating Officer, U.S. Chamber of Commerce

WHAT IMPROVEMENTS CAN BE MADE TO OUR LABOR FORCE TO INCREASE ITS QUALITY AND COMPETITIVENESS ON A GLOBAL SCALE?

DC: History shows that technological evolution can be impeded but not stopped. The Chinese turned away from world exploration in the 15th century, but that didn’t stop the Europeans from developing the capacity for worldwide blue water exploration and navigation. Innovation waits for no one. Therefore, we can continue our current course of trying to (poorly) educate a workforce for a 21st century economy—or we can be honest with the public and say that we all have to do better. A lot better. To be successful in the future economy, workers will need to be skilled, adaptable and resourceful. The starting point is dropping nostalgia for the past, when a vast low-tech manufacturing sector could be counted on to make up for the failures of our school systems and allow unskilled people access to a middle-class lifestyle. Love it or hate it, those days are gone—and the policymakers and the public need to fully acknowledge that before we can really start to improve the system.

HO ARE THE DRIVERS OF MAJOR U.S. W MANUFACTURING GROWTH, AND HOW HAS THAT CHANGED IN THE AFTERMATH OF A DOWN ECONOMY? ARE THERE ANY WINNERS OR LOSERS?

DC: I don’t believe that the down economy has changed the underlying drivers of innovation in our economy. To an ever-increasing degree, the winners will be those who can continually adapt at ever-increasing speeds—and the losers will be those who become satisfied and comfortable. I really don’t believe that most policymakers, or many business leaders for that matter, either here or abroad are prepared for just how revolutionary information technology will be to economics or politics. The good thing is I don’t believe there is another country that is better placed to benefit from the new technology economy than the United States. We have the natural resources, the people and the history of innovation and entrepreneurship. We can win in the world. But we have to choose to do it, and do the hard things necessary to get there. //

NEW YEAR. NEW CITY. AN ALL-NEW INTERGROWTH.

APRIL 28 â&#x20AC;&#x201C; 30, 2014

ARIA

CONNECTIONS

LAS VEGAS, NEVADA

DEALS

CAPITAL

Growth MIDDLE MARKET

// FEBRUARY 2014

GROWTH STORY

Made in the USA A revitalization in American manufacturing prompted The Watermill Group to purchase Wisconsin-based Tenere Inc. in December 2012. Where others may have looked at Tenere as just a metal and plastics part fabricator, Watermill saw the potential for a cutting-edge design and manufacturing company coming into favor given the shift in manufacturing trends. Read more.

“WE HAVE MADE A REAL COMMITMENT BECAUSE WE BELIEVE IN THIS COMPANY.” // ROBERT ACKERMAN, PARTNER, THE WATERMILL GROUP

Growth MIDDLE MARKET

// FEBRUARY 2014

Made in the

USA

The Revival of Manufacturing in America

A publication of

ON THE COVER // Newly acquired Tenere Inc. shows manufacturing is back. Photo By April Patterson

TABLE OF CONTENTS

PRESIDENT & CEO Gary LaBranche, FASAE, CAE glabranche@acg.og

VICE PRESIDENT, CONFERENCES & PARTNERSHIPS Christine Melendes, CAE cmelendes@acg.org

EDITOR-IN-CHIEF Kristin Gomez kgomez@acg.org

FEATURE

Northern Cap & Glove: A Survival Story The unlikely inspiration for American manufacturer Northern Cap & Glove came to founder Sam Rafowitz at the worst time in his long and productive life—a prolonged internment as a young man in five Nazi concentration camps during World War II. Read more.

IN EVERY ISSUE Executive Summary

• Mid-Market Manufacturing Drives the Economy • Grabbing the Attention of an LP • What Happens After a Manufacturing Deal Closes? Read more.

A QUALIFIED OPINION Jeff DeGrange, vice president of Direct Digital Manufacturing for Stratasys, Inc., offers insights about additive manufacturing. Read more.

Larry Guthrie lguthrie@acg.org

Executive Suite

MANAGER, CREATIVE AND BRANDING

Face-to-Face

Brian Lubluban blubluban@acg.org

The Ladder It’s the Small Things

FOR ADVERTISING OPPORTUNITIES

DIRECTOR, STRATEGIC DEVELOPMENT Meredith Rollins mrollins@acg.org Custom media services provided by Network Media Partners, Inc.

DEPARTMENTS THE ROUND

MANAGER, COMMUNICATIONS & MARKETING

ACG@WORK • ACG Toronto Capital Connection® • ACG New York Wine Event • Celebrating Women in PE Read more.

THE PORTFOLIO The latest middle-market trends and thought leadership written exclusively by the team of expert ACG Partners. Read more.

Association for Corporate Growth 125 South Wacker Drive, Suite 3100 Chicago, IL 60606 ACG Membership: membership@acg.org www.acg.org Copyright 2014 Middle Market Growth, InterGrowth and the Association for Corporate Growth, Inc. All rights reserved.

Â®

ASSOCIATION FOR CORPORATE GROWTH

CPAs & Advisor

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

New Year. New City. An All-New InterGrowth.

NFL star Peyton Manning will keynote at this year’s InterGrowth.

InterGrowth® is raising the bar on meeting experiences with reimagined networking and thought leadership. Sports Illustrated’s 2013 Sportsman of the Year Peyton Manning headlines the program along with a wide offering of executive roundtable discussions and breakout sessions on the middle market. It’s easier than ever to connect with the people you need to know: • DealEXPO—A new marketplace for buy- and sell-side investment banks. • InterGrowth Connect—A fast, convenient networking app that’s fully integrated with Outlook, iCalendar and LinkedIn. • Remote Office Space—No more searching for a meeting place. Semi-private and reserved options are available this year, exclusively for InterGrowth registrants. • Targeted Networking Events—Highlighting the diverse segments of the industry, including: LPs, Women in Growth, Global, Energy, Technology, Health Care and more.

“PLANTE MORAN’S TRANSACTION ADVISORY SERVICES AND PRIVATE EQUITY GROUP PRACTICE HAVE GROWN BY DOUBLE DIGITS SINCE 2009. WE HAVE ACG AND INTERGROWTH TO THANK FOR THAT. INTERGROWTH IS BY FAR THE MOST PRODUCTIVE, EFFICIENT AND EFFECTIVE USE OF OUR RESOURCES AND IS AN ESSENTIAL EVENT FOR OUR TEAM.” –Dennis Graham, Consulting Partner, Plante Moran

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL

CHAPTER EVENTS FEBRUARY 3, 2014 ACG National Capital EGBR: Health Care Considerations for Emerging Businesses More info FEBRUARY 4, 2014 ACG Denver Luncheon: Ian Jacobson, Eco-Products More Info FEBRUARY 4, 2014 ACG NYC Luncheon Meeting More info FEBRUARY 5, 2014 ACG 101 Corridor Consumer Products Panel More Info FEBRUARY 7, 2014 ACG Chicago Annual Market Trends Breakfast More Info FEBRUARY 7, 2014 ACG Connecticut Breakfast Meeting More Info

FEBRUARY 11, 2014 ACG Chicago Sunrise Session (Members Only) More info FEBRUARY 11, 2014 ACG Detroit Economic Update More info

Visit www.acg.org for an up-todate list of events in your area.

FEBRUARY 11, 2014 ACG Kentucky Breakfast Meeting Featuring Craig Richard More info FEBRUARY 11, 2014 ACG New Jersey Breakfast Meeting More info FEBRUARY 12, 2014 ACG Central Texas Luncheon Featuring Doug Tatum, Chairman, Newport Group More info FEBRUARY 12, 2014 ACG New York 6th Annual Health Care Conference More info

To have your chapterâ&#x20AC;&#x2122;s upcoming events featured in Middle Market Growth, please send the details to Editor-In-Chief Kristin Gomez. Be sure to include name of event, time, date, location, cost and information or link as to where to register for the event.

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL FEBRUARY 12, 2014 ACG Seattle M&A Landscape and Middle Market Deal Outlook for 2014 More info FEBRUARY 13, 2014 ACG Maryland Networking Event More info FEBRUARY 14, 2014 ACG Kansas City Breakfast Meeting Featuring Troy Prewitt, Ferrellgas More info FEBRUARY 18, 2014 ACG New York Emerging Professionals & NYIC Future Leaders Joint Program & Reception More info FEBRUARY 18, 2014 ACG San Diego Recent Successful Exits More info

FEBRUARY 19, 2014 ACG British Columbia Lunch Meeting More info FEBRUARY 19, 2014 ACG Denver Corporate Executive Breakfast More info FEBRUARY 19, 2014 ACG Orlando February Chapter Meeting More info FEBRUARY 20, 2014 ACG Dallas/Fort Worth Breakfast Meeting More info FEBRUARY 20, 2014 ACG Philadelphia Lessons Learned in Dealmaking More info FEBRUARY 21, 2014 ACG National Capital Monthly Meeting Ray Ritchey, Boston Properties More info

FACE-TO-FACE CONNECT TO YOUR NEXT DEAL FEBRUARY 21, 2014 ACG St. Louis Breakfast With Tom Manenti, CEO, MiTek More info FEBRUARY 25, 2014 ACG Central Texas Lunch Meeting—San Antonio More info

ACG GLOBAL EVENTS

FEBRUARY 25, 2014 ACG Chicago Luncheon Program More info

FEBRUARY 4, 2014 Chapter Leadership Meeting Grand Hyatt Washington Washington, D.C.

FEBRUARY 25, 2014 ACG New York The Portfolio Company CFO’s Roadmap More info

FEBRUARY 5, 2014 ACG Middle-Market Public Policy Summit* Grand Hyatt Washington Washington, D.C.

FEBRUARY 27, 2014 ACG Nebraska Breakfast Meeting With Steve Idelman, Chairman & CEO, Solutionary

APRIL 28–30, 2014 InterGrowth 2014 ARIA Las Vegas, Nevada Register Now

More info

* This is a members only event

To have your chapter’s upcoming events featured in Middle Market Growth, please send the details to Editor-In-Chief Kristin Gomez. Be sure to include name of event, time, date, location, cost and information or link as to where to register for the event.

2014 WEST COAST M&A CONFERENCE March 20, 2014

The Palace Hotel

REGISTRATION IS NOW OPEN!

Join 600+ other Middle Market M&A Professionals for an opportunity to Network with Dealmakers, Capital Providers and leading Private Equity Firms.

Our Speakers and Panelists from the Food and Beverage and Tech Industries will talk about the changing trends in Private Equity and M&A.

NEW IN 2014

CEO Fireside Chat & Keynote Speaker To Be Announced 2/15/14

Dedicated Networking Lounge & Meeting Space For: Interactive Conversations & DealSource: Investment Bankers & PE Firms

New Conference App available for networking with registered attendees. Click here….

ACG San Francisco, Inc. Contact Information Rich Brown, San Francisco Chapter Executive acgsanfrancisco@acg.org | 415.213.5729 | www.acgsfconference.com

THE ROUND NEWS THAT MATTERS

Mid-Market Manufacturing Can Drive the Economy The nationâ&#x20AC;&#x2122;s 33,000 middle-market manufacturing companies are increasingly leveraging advanced manufacturing techniques to generate increased revenue and productivity growth, according to a report released in July 2013 by the National Association of Manufacturers (NAM) and the National Center for the Middle Market, a partnership of GE Capital and The Ohio State Universityâ&#x20AC;&#x2122;s Fisher College of Business. The manufacturing sector in the United States is poised for growth across the next decade. Business leaders are looking increasingly at the United States as a viable location for investment, spurred by lower energy prices, increased productivity and quality, higher transportation expenses, and rising costs elsewhere. The manufacturing resurgence has garnered tremendous attention, spotlighting an industry that some had written off just a few years ago. Manufacturers have added roughly 500,000 net new workers since the end of the recession, with prospects for future growth high. Of course, much of that future success depends on our ability to compete globally, implementing the latest innovations and technologies, pursuing growth in new markets and Continued on next page

THE ROUND NEWS THAT MATTERS hiring the most talented people. That is why the results of the NAM and the National Center for the Middle Market’s Advanced Manufacturing Techniques study are so important. Many Americans, especially the younger generation, have a preconceived notion of what a bluecollar worker is, and for that reason, we have very real challenges in changing perceptions about modern manufacturing. Manufacturing today is an extremely high-tech, high-skill endeavor that is always evolving, and the data tend to back this view up. Privcap recently released The New U.S. Manufacturing Opportunity, a briefing sponsored by McGladrey that outlines the current opportunities in the manufacturing sector. It reports on key findings, including how the U.S. manufacturing sector is rebounding.

This research shows that nearly half of all middle-market manufacturing companies use advanced production techniques. This includes a wide variety of high-tech tools, including automation, computerization, control systems, robotics and processes to improve sustainability. There are many reasons why manufacturers are adopting these technologies, ranging from productivity gains to higher profit margins to waste reduction. By using more advanced techniques, manufacturers can reduce labor costs, produce better products and improve their global competitiveness. As noted, the implementation of advanced manufacturing techniques relies heavily on high-skilled talent. Yet, many of them cannot find the workers with the skills needed to fill open positions. Roughly half of all survey respondents said they have unfilled positions due to a skills gap. An internal NAM survey of middle-market manufacturers conducted in October 2012 found that more than 62 percent had positions they were unable to fill. This is surprising given the still-elevated unemployment rates. This issue is not going to go away anytime soon. With baby boomer retirements, the pipeline of available new talent to replace the aging manufacturing workforce is shrinking. This survey finds most applicants lack the science, technology, engineering and math (STEM) skills needed for today’s shop floors, with manufacturers also citing the importance of management and communications skills. Manufacturers using advanced production techniques were more likely to create internal programs and/or collaborate with educational institutions to address their hiring needs proactively than those that did not profess to use such techniques. To combat the skills gap, the Manufacturing Institute—the nonpartisan affiliate of the NAM—announced the goal of credentialing 500,000 workers with skills certifications aligned to manufacturers’ hiring needs by the end of 2016. President Obama highlighted the Institute’s NAM-Endorsed Skills Certification System in June 2011 as a model for industry-based credentials and announced key steps toward building the educated and skilled workforce manufacturers in the United States need to compete successfully in the 21st century economy. The NAM-Endorsed Skills Certification System is a group of stackable credentials applicable to all sectors of the manufacturing economy. These nationally portable, industry-recognized credentials validate the skills and competencies needed to be productive and successful in entry-level positions in any manufacturing environment, and they can be learned and earned in secondary and postsecondary education. The result is a professional and Continued on next page

THE ROUND NEWS THAT MATTERS

To learn more about the state of U.S. middle-market manufacturers, read this study from the National Center for the Middle Market.

technical manufacturing workforce with valuable industry credentials, making companies more innovative, more competitive and more marketable. The certification system, which already is available in 31 states and continues to expand, can help manufacturers achieve the trained workforce they demand. Beyond certification, it also is important to change perceptions about what modern, advanced manufacturing is and what it is not. “Dream It. Do It.” is the Institute’s national manufacturing career awareness and recruitment program that includes local and national activities in 25 areas around the country to engage, educate and employ the next generation of skilled manufacturing talent. In summary, these survey results highlight the changing manufacturing landscape, one that increasingly embraces advanced manufacturing techniques. Manufacturers are benefiting from investments made in innovation and technology in years past. Those investments help to propel productivity, keep manufacturing costs down, increase process efficiencies and allow U.S. companies to become more competitive globally. To stay ahead, however, we must stay focused on new innovations that keep us at the forefront of technology. This means continuing to invest in both human and physical capital Visit www.nam.org for more information about manufacturing and the economy.

and expanding research and development efforts. // –Chad Moutray, chief economist for the National Association of Manufacturers (NAM). NAM is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states.

THE ROUND NEWS THAT MATTERS

Learn more from Andrea Kramer, managing director of Hamilton Lane, in this video from Privcap on effective IR for GPs.

Look My Way: Grabbing the Attention of an LP A conversation with Andrea Kramer, Managing Director, Hamilton Lane LPs are the financial unicorns of the middle market. Everyone wants to capture these prized investors, but they aren’t quite sure how to go about it. MMG recently spoke with Andrea Kramer, managing director of Hamilton Lane, to gain some expert insight on how best to turn heads in the LP community. MMG: LPs are highly sought-after investors. What does it take to grab your attention? AK: Hamilton Lane receives about 600 private practice memorandums (PPMs) annually, and we review every one. We’re very concentrated in our approach and generally invest in only about 2-3 percent of what we see. Because our focus is about 80 percent middle- and lower-middle market, what matters most are investors who have a tight investment strategy that differentiates them. To me, that translates as a firm that has a value-based mindset and makes investments that are proprietary and differentiated. MMG: In your experience, what have been the top relationship killers? AK: Lying is number one. You can lie in all sorts of ways—in the valuations, in deals that haven’t or could’ve gotten done, or in who did the deal. We spend a lot of time on due diligence, so we’re ultimately going to get the straight answers. Even if it’s not in our files or Continued on next page

THE ROUND NEWS THAT MATTERS in our attribution analysis, we talk to the CEOs and management teams and discover who actually managed the deal from day-to-day. At this stage in my career, I’ve seen just about everything, including indictments. My priority is to get all of the information and dig up any skeletons. The interesting thing in private equity is, even though it’s private, there tends to be only one to two degrees of separation. Just be transparent and above board with us. MMG: What specifically are you looking for in PPMs? AK: First, we look at returns. Generally, with funds we’re seeing today, the prior funds don’t have a ton of realization. But since that’s what we’re looking for, we like to see distributed to paid in (DPI) and total value to paid in (TVPI), particularly with growth rates. What is the value that the GP is adding, including growth rates, EBITDA and EBITDA performance, and revenue and revenue growth? While aggregate performance works for bigger funds, we want to see it broken down by company in the lower end and mid-market, so we can assess how each portfolio position is performing across a variety of factors. MMG: With management fees continuing to be a point of interest for LPs, can you talk about what you look for, or ask about, in respect to these fees? AK: We want to make sure that the GPs are making money on the back end, not the front end. The pendulum is swinging whereby LPs are winning on some of these discussions. Our view is that if you can be practical about this, then you can have a win-win situation. This can’t be the most expensive asset class although, in many cases, it continues to be. Private equity is meant to be a long-term play and LP dollars should be aligned accordingly. We are in this for a return on investment, both multiple and IRR. IRR is something that happens right out of the gate, and you don’t want a negative IRR, so fees do matter. MMG: Relationships are at the heart of this industry, perhaps even more so for LPs. What can GPs do to establish and grow a trusted relationship with an LP? AK: It’s a people business. At Hamilton Lane, we have three areas of focus. Primary fund investing is the one that everyone knows—those primary dollars are necessary to raise a fund. We are also secondary investors. So if there’s an LP that wants to exit a fund, we’re happy to take their position, albeit in a way that makes sense for us. Even smaller secondary positions remain meaningful in these transactions because on the other side of the table is a GP, and they want to work with us because over the long term they’re hoping for primary dollars. Lastly, there are co-investments, which are a great way to gain intel on a GP’s transaction team, how they source and manage the deals and how they exit. Depending on the situation and opportunity, Hamilton Lane can play any of those roles, so GPs want to get to know us. And from our perspective, it’s important for GPs to keep in contact with us and to keep us updated regularly, not just during the fundraising cycle. //

LEARN MORE // Look for programming related to LPs at InterGrowth® 2014. Register today!

THE ROUND NEWS THAT MATTERS

The Top 10 Operational Oversights in Manufacturing M&A Today’s financial and strategic buyers are seeking more granular information on how best to run a combined operation and maximize deal synergies. This is even truer in a manufacturing deal. Buyers are looking for ways to optimize the operational side of a deal in the early stages, specifically during the targeting, modeling and diligence phases. Having this intel early not only increases the accuracy of financial models, but also helps facilitate the handoff and integrate key operations goals during the final phase of the deal. In a manufacturing M&A deal, the key areas of operational focus pre-deal include the core supply chain areas of: • Supply and demand planning (to increase working capital through inventory reduction and decrease forecast and supply planning errors); • Strategic sourcing (to save in the cost of goods sold category and create a structured process for future sourcing); • Manufacturing (to reduce overhead rates and increased utilization of fixed assets), and distribution (to reduce overall logistics costs through network optimization). Continued on next page

THE ROUND NEWS THAT MATTERS Additionally, these 10 crucial operational details are often overlooked during a transaction: 1. Product Development:

6. Tax Considerations:

Portfolio rationalization, reduced develop-

Like labor agreements, tax concerns must

ment cycle time and improved rates for

be analyzed by finance (CFO or third-party

launch success and launch time should be

expert) and operations and considered as

considered in R&D-heavy acquisitions.

part of the deal structure.

2. Returns Management:

7. Competitors’ Response to

Consider reverse logistics before a transac-

Customer & Supplier Bases:

tion to capture labor savings from returns

Savvy and aggressive competitors may

processing operations and reduce waste

seize the opportunity to destabilize custom-

management costs.

er and supplier relationships, devaluing the target business.

3. Transaction Type Nuances: The divestiture of a business requires differ-

8. Competitors’ Response in Talent Battle:

ent processes than the divestiture of a prod-

Competitors may try to steal valuable em-

uct line. In the former, early hiring of corpo-

ployees during the transaction lifecycle.

rate replacement functions and knowledge

It is paramount to identify key talent and

transfer are in the latter, transaction services

“key man risks” and to build incentive plans

agreements should be extended as long as

based on strategic retention.

possible. Separation from the seller’s systems is never simple. Also, serial acquirers

9. Contracts and Commercial Agreements:

must treat and plan for mergers of equals

With agreements in place, identify supplier

differently than takeovers.

minimum purchase guarantees and seek favorable rates for revised volumes. Also

4. Legal Name Changes:

secure commercial agreement requirements.

While a legal name change seems a mere formality, operational disruptions can occur

10. Long-Term Impact:

if an unmitigated legal name change impacts

Long-term operational items may impede

the company’s ability to import/export

deal progress and achievement of supply

products and, in some cases, invalidates

chain efforts (e.g., long-range product

supplier contracts.

plans; reviews by legal, public and regulatory affairs).

5. Labor Agreements: Labor agreements can be an unanticipated

–Tom Racciatti is a senior manager in

obstacle for integration execution, which

West Monroe Partners’ Private Equity

can slow anticipated deal benefits.

Practice based in Minneapolis.

THE ROUND NEWS THAT MATTERS Take the McGladrey Manufacturing & Distribution Monitor 2014 Survey Since 2006, the McGladrey Manufacturing & Distribution Monitor has helped companies address operational efficiencies, growth strategies, exporting and other areas of interest to the industry. The Monitor results and analysis are shared with participants, of course, but also with media, industry associations and government policymakers to help these groups understand the challenges and concerns manufacturers are facing. To date, the Monitor has surveyed only companies based in the United States but that may have operations overseas. In 2013, the survey had more than 1,000 participants, resulting in a wide-ranging report that served as a statistically robust and convincing snapshot of the industry. In order to reflect the increasingly global nature of business for middle-market manufacturers and distributors, the 2014 Monitor is expanding participation to include companies based outside the United States, such as Brazil and Mexico. McGladrey is a leading U.S. provider of assurance, tax and consulting services focused on the middle market and, through its membership in RSM International, with a presence in 100 countries. The global reach of this survey will be unique and provide a rare perspective of the private and closely held companies that make up the majority of its participants. The report will include the views of executives participating in focus groups being conducted across the country. These discussions will explore the reasons behind the results addressed in the report and the specific ways in which various companies are coping with the opportunities and challenges before them. They also will provide outlooks on the future of the industry. In addition to the comprehensive report, survey participants will receive a customized benchmark report comparing their responses to those of their peers across the country as well as to groupings of companies similar to their own. To access the survey, click the link below and the survey will be emailed to you. The survey closes on March 7. Within about two months of the survey closing, participants will receive their benchmark reports. In the following weeks, reports on the trends and challenges identified in the survey will be released. These will include the best practices of thriving and growing companies across the globe. Note that individual and company information is kept confidential. McGladrey will only share identifiable data internally and with vendors assisting in the creation of the study. Responses will be reported to third parties only in the aggregate through McGladrey reports and articles, benchmark reports and presentations. // Request the survey.

View the latest report here.

THE ROUND NEWS THAT MATTERS

Manufacturing M&A: Once the Deal Is Done “Deal junkies” tend to derive satisfaction from getting an M&A transaction closed. However, in pursuit of that end result, it’s important to plan for the challenges that arise after closing. Every deal will yield different post-closing challenges, but the best post-closing crisis management is actually thoughtful pre-closing risk management based on these two questions: • What transition and integration plans and processes are needed to ensure that the acquired company succeeds? • How might the acquired company’s competitors and key stakeholders react and impact the value of the deal? Transition and Integration Planning The goal of effective transition and integration planning is to ensure that the acquired business will operate successfully and will be appropriately integrated. Much of this planning involves considering the essential operational systems and processes, including purchasing and sales, accounting and payroll. The greatest post-closing risk management is achieved if diligence includes how the matters being reviewed impact transition and integration processes. For instance, a narrow diliContinued on next page

THE ROUND NEWS THAT MATTERS gence perspective on a key supplier focuses on whether the contract is affected by the sale transaction. But a broader perspective with integration planning considers whether the purchaser has an independent relationship with the supplier or has conflicting obligations, and how these relationships will be reconciled after closing. Threats to Deal Value Whenever an acquisition becomes public, third parties can and will react. Customers may need assurance that their needs will continue to be met. Competitors may seek to take advantage by aggressively marketing to the acquired business’ customers or soliciting the acquired business’ key employees, such as sales personnel or the product designers or engineers who develop products. The solution is a communications plan that ensures a team is in place to allay the concerns of customers, suppliers and employees and is equipped with the benefits of the transaction to stakeholders. As part of a successful diligence process, the level of commitment of existing customers and whether the key employees are bound by restrictive, enforceable covenants that protect the company against loss of goodwill is also assessed. An old English proverb states, “There’s many a slip ‘twixt cup and lip.” Designing an integrated approach to address issues essential both to buying the business and operating it after closing will reduce the number of “slips” and help make the aspirations of the acquisition a reality. // –David B. Eberhardt, a principal who co-leads Miles & Stockbridge’s Manufacturing & Distribution Industry Team (MAD·IT). –Joseph P. Ward, a principal with Miles & Stockbridge who represents businesses and equity investors in a variety of corporate and securities matters, including domestic and cross-border mergers and acquisitions. He also is secretary of the board for ACG’s Maryland Chapter. Through its Manufacturing & Distribution Industry Team (MAD·IT), Miles & Stockbridge provides a forum and an accountable team to share industry-focused knowledge and best practices with its clients. Visit Miles & Stockbridge’s MAD·IT microsite.

DISCLAIMER This is general information and not intended to be taken as legal advice for any particular matter. It is not intended to and does not create any attorney-client relationship. The opinions expressed and any legal positions asserted in the article are those of the author and do not necessarily reflect the opinions or positions of Miles & Stockbridge P.C., its other lawyers or Middle Market Growth.

THE ROUND NEWS THAT MATTERS

VERTICAL VIEW // THE U.S. MANUFACTURING SECTOR

Manufacturing has increased American standards of living mostly due to the affordable prices and competition of consumer goods.

600k The manufacturing sector has added almost 600,000 new jobs since 2010.

From 1998-2011, manufacturing grew at an annual rate of 3.3 percent, outpacing growth in other sectors.

U.S. manufacturers generated $1.84 trillion worth of value-added in 2011.

One in seven U.S. private sector jobs depends on the U.S. manufacturing base.

All facts and figures are from the National Manufacturing Institute.

Accounting for 50 percent of the sectorâ&#x20AC;&#x2122;s GDP, the four largest manufacturing industries are chemical products; computers and electronic products; food, beverages and tobacco; and petroleum and coal products.

Manufacturing supported an estimated 17.5 million jobs in the United States in 2011.

APRIL 28 – 30, 2014

ARIA

LAS VEGAS, NEVADA

PEYTON MANNING TO KEYNOTE INTERGROWTH! Spo rts Il l ustra ted’s 2013 Spo rtsman o f the Year w i l l hi g hl i g ht Wednesday’s k eyno te l uncheo n . H e w i l l share hi s perspecti ves o n l eadershi p, shi ni ng a l i g ht o n ho w pul l i ng i t al l to g ether – i ncl udi ng the basi cs o f teamwo rk , bui l di ng a stro ng bench and a co mpeti ti ve spi ri t – can tak e yo ur busi ness to the nex t l evel .

The Revival of Manufacturing in America

DEALMAKERS // Steven E. Karol, managing partner and founder, with his team at The Watermill Group.

Made USA IN THE

BY DANIELLE FUGAZY

Photo by Mark Ostow

Photo by April Patterson

ince its founding more than 35 years ago, Boston-based The Watermill Group has kept an eye on manufacturing companies. Of course, given the ebbs and flows of the market, investing in American manufacturing companies hasnâ&#x20AC;&#x2122;t always been an easy or even a good strategy. In fact, most companies have been outsourcing their manufacturing needs for the last 20 years to places where the cost of labor has been cheap, thus making it extremely difficult to own a successful manufacturing company in the United States. However, the development of horizontal fracking technology in the energy sector, coupled with increasingly higher costs of outsourced labor and lower quality production from non-North American countries, has caused companies to reassess their manufacturing policies. As a result, many companies are now bringing their manufacturing operations back to North America. Sensing this shift, Watermill renewed its commitment to manufacturing by purchasing the Dresser, Wis.-based company Tenere Inc. in December 2012. When assessing the value of a manufacturing company, Watermill outlined three main drivers. â&#x20AC;&#x153;There are three inputs that manufacturers have

TEAMWORK // (From left) Michael Fuller, principal at Watermill, talks with Robert Ackerman, partner.

Photo by Mark Ostow

to look at: the cost of raw materials, labor costs and energy costs,” says Steven E. Karol, managing partner and founder of Watermill, noting that the resulting lower cost of natural gas stateside is translating into lower manufacturing costs domestically. “Energy is a major input, and the cost of it is decreasing. Tenere can do great here and so can many other companies with these favorable factors playing a positive role.” Founded in 1966, Tenere manufactures advanced, customized components from metal and plastics for blue chip customers such as IBM, HewlettPackard, EMC and John Deere. The company manufactures everything from steel metal fabrication to injection-molded products, but most of its customers are technology companies with data centers. For those clients, Tenere helps engineer server racks to maximize computing density while ensuring machines have the spacing and ventilation to function reliably. The company had been on Watermill’s radar for a while. Where others may have looked at Tenere and saw a metal and plastics part fabricator, Watermill saw the potential for a cutting-edge design and manufacturing company coming into favor given the shift in manufacturing trends. Previously owned by Stonehenge Partners Inc., Tenere had been on and off the selling block numerous times in the past 12 years. The company was in need of a partner with a longer-term outlook than prior owners.

Photo by Mark Ostow

“I THINK WATERMILL’S HIGH-GROWTH APPROACH WAS LIBERATING TO THE EMPLOYEES. IT EMPHASIZED A LONG-TERM STRATEGY TO BUILD THE COMPANY OUT WHILE SERVING THE CUSTOMERS. WATERMILL BELIEVES THAT IF WE BUILD A GREAT COMPANY, THEN EVERYONE’S FINANCIAL GOALS WILL BE MET.” Greg Adams CEO of Tenere

“Watermill was attracted to the engineering sophistication at Tenere,” says Watermill Partner Robert Ackerman. “We specialize in optimizing mechanical components in highly complex systems,” says Greg Adams, CEO of Tenere. “By fine-tuning the mechanical components, we can help our customers achieve greater operational efficiencies. And considering data centers today can cost billions of dollars, making the most of each facility is very important.” Tenere’s storage systems are custom-built for each customer and often include more than 10,000 parts that need to be customized, designed and assembled. “Our clients count on us to be a reliable extension of their organization. We need to be flexible, good at problem solving and meet the client’s needs, which are continuously changing,” Adams says. Undoubtedly, the uncertainty surrounding Tenere’s future for so many years took an emotional toll on its employees and changed budget decisions. “I think Wa-

Photo by April Patterson

termill’s high-growth approach was liberating to the employees,” Adams says. “It emphasized a long-term strategy to build the company out while serving the customers. Watermill believes that if we build a great company, then everyone’s financial goals will be met.” In the short time that Watermill has owned Tenere, the company has been growing rapidly. To date, its gross sales are up to $100 million per year, a 50 percent increase from the prior year. Naturally, Tenere’s growth hasn’t come without a substantial contribution from Watermill. Watermill has spent about $9 million, taking into account the acquisition and equipment Watermill has financed. “We have made a real commitment because we believe in this company,” Ackerman says. The first thing Watermill did upon taking ownership was invest in the team. Watermill hired Adams, who had been the chief financial officer at Nypro, a manufacturer of products for the healthcare and packaging industries.

WATERMILL WANTED TO MAKE SURE PEOPLE UNDERSTOOD THAT A MANUFACTURING JOB AT TENERE IS A CAREER PATH AND STARTED EMPHASIZING TRAINING AT THE COMPANY AND AT LOCAL COLLEGES.

Photo by Mark Ostow

THE TRIO // (From left) Benjamin Proctor, partner, with Julia Karol, director of investor relations, and Robert Ackerman, partner, all of Watermill.

“We wanted someone with the vision to see the growth possibilities and to bring leadership, but we also wanted someone who understood where the company was and was willing to get hands-on in creating change,” says Julia Karol, a director with Watermill. Watermill then took the management team on a retreat and worked to reenergize the employees. “We wanted them to know we were there to support their growth because having a motivated team is critical,” Julia Karol says. Adams personally met one-on-one with every employee, then met with them again in groups of about 15 to listen to how they felt the company could be improved. “Eighty percent of the employees are working with the product, and they added a valuable perspective. And they were anxious to be engaged,” Adams says. “We laid everything out after we got the employees’ input.” What’s more, Watermill wanted to make sure people understood that a manufacturing job at Tenere is a career path and started emphasizing training at the company and at local colleges. Additionally, Tenere hired a supply chain director and more employ-

Photo by Mark Ostow

ees. The head count at the company has grown from 318 to a whopping 618 employees in less than a year. Part of the employee growth came early on from an add-on acquisition Watermill completed in May 2013. Watermill bought Protogenic, a carve-out that focuses on prototyping, design and casting. “We added 35 people, and it expanded our capabilities by creating prototypes and demonstration drafts before we put products into full-scale production,” Steven Karol says. With the acquisition, Tenere also acquired a 22,000-square-foot manufacturing facility in Lakewood, Colo., and has since opened several more manufacturing facilities. Today, the company has four plants located in Dresser, Lakewood, St. Croix Falls, Wis., and Somerset, Wis. Watermill also is investing in new machinery to accommodate its growth and customer demands. “We export from Wisconsin and Colorado to all around the world,” Adams says. “Our plants are filling up. Our parking lot is jam-packed in Wisconsin and the employees are energized by it. This whole business comes down to the people. It’s a critical component. And we’ll continue to grow.” // Danielle Fugazy is a freelance writer and contributor to Middle Market Growth.

THE ROSTER // (From left) Michael Fuller, Robert Ackerman, Benjamin Proctor, Steven Karol, Dale Okonow and Julia Karol.

Photo by April Patterson

THE RETURN OF U.S. MANUFACTURING Tenere isn’t the only company seeing the benefits of manufacturing in the United States. In November 2013, Apple Inc. announced plans to build a plant in Arizona to manufacture its electronic devices. This comes on the heels of Apple’s plan to build computers in Austin, Texas, and Google Inc.’s Motorola unit deciding to assemble its new Moto X phones in Texas. American companies are opening manufacturing plants in the United States again for a number of reasons. First, companies want more control over their proprietary products, and they have realized it’s not possible to maintain a high level of proprietary protection in many countries where manufacturing had been popular of late, such as China. Second, shipping to and from the United States and these countries no longer makes sense with the cost of labor in those countries increasing, not to mention the cost of shipping and delay in getting products to North American-based consumers. Additionally, after so many years of outsourcing, it has become clear that it’s harder to manufacture high-quality products outside of North America as laws and cultural differences often lead countries to be less disciplined in their production methods. Who can forget the headlines about tainted baby formula and toys that were produced in China? Lastly, and not to be underestimated, is the huge increase in horizontal fracking in the United States that is making manufacturing more attractive in North America. The ability to horizontally drill is helping the United States and Canada work toward becoming energy exporting companies by 2020.

T H

A N N U A L T E X A S A C G C A P I TA L C O N N E C T I O N

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James R. “Jim” Crane Chairman & CEO Crane Capital Group Inc. Owner & Chairman Houston Astros

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Janet Gurwitch Founder & Former CEO Laura Mercier Cosmetics

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PRESENTED BY ACG CHAPTERS IN HOUSTON, DALLAS/FORT WORTH and CENTRAL TEXAS

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Cap& Glove NORTHERN

A SURVIVAL STORY

BY DEBORAH L. COHEN

FAMILY MATTERS // Sam Rafowitz (center) with his sons Ivan (right) and Ken (left).

he unlikely inspiration for American manufacturer Northern Cap & Glove came to founder Sam Rafowitz at the worst time in his long and productive life—a prolonged internment as a young man in five Nazi concentration camps during World War II. It was then that Rafowitz began making French berets using cloth repurposed from prison uniforms, offering hand-sewn hats to doctors and Kapos—the prisoners in charge of supervising forced labor—in exchange for an extra ration of bread or other small act of kindness. “I made up my mind. I know how to make a beret, so when I was going to be liberated, this was going to be my future,” says Rafowitz, who at 88 still exudes the stalwart enthusiasm for headwear that earned him the nickname “Sam the Hat Man” in the retail trade. Rafowitz would go on to develop one of the premier hat and glove manufacturers in the United States, supplying major retailers from Kohl’s to J.C. Penney to L.L. Bean with everything from seasonal headwear to specialty items. After his liberation from the camps in 1945, Rafowitz moved to Paris where he worked for relatives who manufactured apparel. With the help of a Jewish relief organization, he, his wife and young son emigrated to Minneapolis-St. Paul in 1949. Finding American life as unfamiliar as its language, the Warsaw native took night classes to learn English. Two years later, the hat-making venture Rafowitz started with his brother-in-law won its first significant order. Rafowitz, who still had trouble with English, somehow managed to persuade a buyer at the Dayton’s department store chain to take a look at his sample of a “trooper,” the Russian-inspired hat popular during Minneapolis winters. After the meeting, he walked away with a contract worth several thousand dollars, but no workspace or capital to buy materials. Fortunately, several days later he managed to secure a $2,000 bank loan with no collateral. “That one hat put us in business,” Rafowitz recalls. “We set up a factory, and we worked day and night.”

“NOTHING COULD STOP US. I HAD A DIFFERENT VIEW ON HOW TO LOOK AT LIFE AND HOW TO LOOK AT THE BUSINESS AND TO KEEP GOING. AND WE GOT THE BEST CUSTOMERS IN AMERICA.” Sam Rafowitz founder of Northern Cap & Glove

That first “factory” took the form of a rented room where Rafowitz quickly learned the ins and outs of retail protocol, including not delivering finished goods directly to buyers’ offices. “We didn’t know about deliveries,” he says. “When we made the hats, we took them in old boxes; we walked to Dayton’s— box by box.” Despite the learning curves, Northern Cap steadily expanded its offerings, moving beyond winter headwear to baseball caps, golf visors, fashion hats, knit hats—the works. The company even developed several patents along the way. Rafowitz, who jokes his own head was made for hats, was regularly asked to model samples in buyers’ offices before they would finalize an order. “Nothing could stop us. I had a different view on how to look at life and how to look at the business and to keep going,” he says. “And we got the best customers in America.” The Dayton’s relationship, in particular, led to critical business with the retailer’s fledgling Target concept when it emerged in 1962, allowing Northern Cap to grow along with the new chain. The rest of the family also grew along with the company. Rafowitz’s sons, Ivan and Ken, who as kids helped out by sweeping factory floors and stewarding homeless men hired for day labor, were brought into the business at various points after finishing college. Following an early sales stint at the company, Ivan Rafowitz left in 1980 to pursue a musical career, ultimately earning a gold record for the pop hit “Funkytown” with the band Lipps Inc. He came back in 1991 to help his brother Ken, then in charge, with a catalog project and wound up staying for the long haul. Ivan Rafowitz says his sales acumen, combined with his brother’s proficiency in the design and construction of hats, helped Northern Cap move beyond department store sales into specialty retailers such as L.L. Bean and REI, which have exacting specifications for their branded garments. “My brother just took a little different direction with the company,” Ivan Rafowitz says. “He did a really good job cultivating those types of accounts.” At the peak of U.S. production, Northern Cap operated three factories in the United States and one in the Dominican Republic. Unfortunately, like other U.S. apparel makers, its rising labor costs eventually crimped the ability to produce high-quality, affordable and profitable goods domestically.

“I know there’s talk about ‘Made in USA’ again,” Ivan Rafowitz says. “That really only applies to a specialty low labor product.” Because cold-weather accessories are complicated to create, domestic production is often economically impossible. “Anything that’s not labor intensive can still be manufactured here, but if it’s labor intensive, like apparel, headwear, pants, shirts, there will never be a resurgence of manufacturing in this country on those items,” he continues. Reluctantly, the Rafowitzes sought alternatives and were forced to close factories. Sam Rafowitz took his first trip to Korea in the early 1970s, where he found a supplier capable of meeting his quality standards for some Northern Cap products. But it wasn’t for another two decades that the company would be willing to take its more complicated coldweather headwear overseas, this time to China. “Headwear is very labor intensive,” Ivan Rafowitz says. Going offshore “obviously helped our bottom line, helped our top line. Our volume grew, and we were able to enter many more markets.” The brothers purchased the company from their father in 1996, but Sam Rafowitz remained active in the business. Meanwhile, other big changes were happening in the industry, including the development by retailers of their own sourcing departments, which added to pricing worries. The family eventually decided to seek a private equity partner. “We felt it was time to take some chips off the table…so we wouldn’t have to have everything at risk,” Ivan Rafowitz says. He won’t disclose exact figures, but says by 2004 sales had exceeded $25 million annually. The company had always been profitable, but experienced significant growth after cultivating private label accounts.

“NORTHERN CAP HAD STARTED SOMETHING WE COULD LEVERAGE TO GET MORE BUSINESS AND ACCUMULATE MORE CUSTOMERS.” Michael Beauregard Senior Partner, Huron Capital Partners

In July 2004, Northern Cap completed a recapitalization with Detroitbased Huron Capital Partners, with the family retaining a third of the business. Huron Capital, today in its fourth fund, had significant expertise in regenerating consumer companies. It has purchased 69 companies since 1999. Huron’s plan was to exit in four to six years, and it steered Northern Cap toward new distribution channels, including licensing deals with the Dockers and Karen Neuburger brands. It also brought the expertise in forecasting, budgeting and institutionalizing procedures that family-run businesses often lack. “Northern Cap had started something we could leverage to get more business and accumulate more customers,” says Michael Beauregard, the senior partner at Huron who worked closely with the company. Among the best parts of the story, though, says Beauregard, was that the Rafowitz family’s rollover investment doubled during the private-equity holding period. With Ivan and Ken still running day-to-day operations, Northern Cap eventually found a strategic buyer in accessories company Totes Isotoner Corp. Owned by MidOcean Partners, Totes was attracted in large part to the Dockers license (for gloves and headwear), which could build its menswear presence, as well as Northern Cap’s business supplying Target with merchandise under the C9 by Champion brand. Totes purchased Northern Cap in February 2008. “Dockers…gave us a very complementary fit in major accounts where we overlapped already where Northern Cap was,” says Doug Gernert, chief executive of Cincinnati-based Totes. “We had a long historical relationship with Target,” he adds. “We looked at what Northern Cap brought, which was this C9 brand relationship in gloves and headwear, and again it was the same kind of argument.” With Ivan Rafowitz heading the new division through 2012, Totes was also able to take Northern Cap’s customized design practices and apply them to other parts of the company, including its umbrella business, Gernert says. For his part, Sam Rafowitz says he’d gladly build the whole business all over again from the ground up. He has few regrets, other than Totes giving its new division the generic-sounding name of “headwear private label.” “I thought Northern Cap was going to be forever,” he jokingly laments. // Deborah Cohen is a freelance writer and a contributor to Middle Market Growth.