UPDATED: ICG has bought Seaway Plastics Engineering, a provider of injection-molded, engineered components and value-added services for the medical device, healthcare and specialty industrial sectors, from Tonka Bay Equity Partners.
PE Hub spoke with Uzair Dossani, managing director of ICG’s North American direct private equity group, and Kevin Gregory, the firm’s healthcare sector lead, about how the deal symbolizes ICG’s investment thesis.
“We take a very thesis-driven approach to investing,” Dossani said. “We spend a lot of time in our sectors identifying themes and trends that we like, and then we proactively look for businesses that allow us to play the theses that we identify. It’s important because it allows us to develop conviction outside of the constraints of a typical sale process, to make better investment decisions, and to be more effective board members and owners.”
ICG spent a year looking to make a platform investment in the medical device sector and evaluated many opportunities.
“When we came across Seaway, we knew we had found what we were looking for in a platform investment: a great management team, strong organic growth, blue-chip customer base with great retention, strong systems and demonstrated success with add-on M&A,” Dossani explained.
Founded in 1984, Seaway has over 250 employees operating from three facilities on the East and West Coasts. The company deals with prototype and low-to-mid volume production of complex projects in the medical, aerospace, defense and precision industrial industries. While the company has 400-plus customers across a range of end markets, the majority of revenue is generated by the medical device and healthcare segments.
Seaway has historically grown organically at above-market rates, Dossani added. He expects this growth to continue, describing it as “a core element of our thesis, along with executing on add-on M&A.”
Although the PE firm is expecting to expand existing facilities, it is also on the lookout to expand its footprint in the Upper Midwest too. ICG is rallying on Seaway’s prior acquisition prowess to grow the company.
Dossani expressed confidence that the business will weather the current macroeconomic challenges.
“We like investing in platforms that have a demonstrated ability to perform well, even in challenging economic times,” he said. “We looked carefully at how this business performed during covid. It was remarkably resilient, which is a nice example of what we might expect going forward in a recessionary period.”
Gregory said ICG will take advantage of the fragmented market to scale Seaway.
“Medical device manufacturers rely on a fragmented set of vendors, many of whom have capabilities Seaway would find compelling,” said Gregory.
For example, Gregory said the firm may find a smaller manufacturer with a concentrated customer base, but in an attractive end market, such as vascular therapy. “These types of additions that increase the medical mix, fill geographic white space and broaden the product offering could be attractive for Seaway.”
He said with these strategies in place, ICG is also expecting strong returns from the Seaway investment in its anticipated four-to-six-year hold. “I would say that we would expect to at least double, if not triple, the size of the business during our hold period,” he said.
“We believe the sector is growing at least in the mid-single digits, and the company has delivered this consistently,” Gregory said. “We then have the opportunity via acquisitions which is additive to this baseline growth.”