Inside the exit: Going local paid off in Lincolnshire’s sale of Schumacher to Ripple

For private equity firms whose portfolio companies have factories in North America, the snarled global supply chain may be a blessing. Case in point: After just 18 months of ownership, Lincolnshire Management sold Schumacher Electric – which is headquartered in Dallas and has a factory in Mexico – to Ripple Industries in a deal announced last week.

Managing director Tom Callahan told PE Hub that Lincolnshire achieved its goals ahead of schedule. The firm’s revenue grew by around 40 percent, and its EBITDA doubled.

Callahan attributed the performance largely to pent-up demand for the battery chargers and other power supply products Schumacher makes – demand that couldn’t be met by competitors due to supply chain disruptions.

“Those kinds of issues affected many of Schumacher’s competitors who use Asian sourcing models,” Callahan said. “They may design products and manage their brands but they don’t actually manufacture anything, and with container costs and shutdowns in China, it became difficult for some of them to get products; whereas Schumacher is a manufacturer and has a major plant in Mexico.”

Callahan also attributed the growth to the portfolio company’s “excellent management team.”

Lincolnshire helped Schumacher expand its product line and grow organically. “When we purchased this business, it was really a battery charger and jump starter business, but it continued to evolve very quickly – as the market is continuing to evolve – towards power conversion products across a broader range of consumer, commercial and industrial needs.”

Schumacher outperformed its financial forecasts, and it became apparent by June of last year that the company was able to generate a very significant return for its partners. “At that point, we engaged a banker and entered the market sometime in October,” Callahan said.

Linking up with the Ripple, the new owner of Schumacher, was easy, Callahan said, adding that conversations between the two firms started just after six to eight months after Lincolnshire’s acquisition.

Callahan sees many opportunities for Schumacher to grow. Athough Schumacher’s products are sold in almost 60,000 brick-and-mortar distribution points, Callahan said there is potential in e-commerce platforms as a near-term strategy. To tap that, “we agreed on a strategy with management to staff up for a very serious e-commerce sales effort and hired a few specialists.” The medium-term opportunity for Schumacher will be to penetrate the European market, and the long-term opportunity is the expansion of electric vehicle components, such as charging systems.

Callahan said that even though the electric vehicle space looks attractive, it didn’t compel Lincolnshire to hold on to Schumacher longer, because the penetration of electric vehicles still represents a small percentage of new car sales. “It’s not huge yet, and private equity funds typically are looking for instant opportunities, a five-to-seven-year timeframe at the latest, and this was a good opportunity to sell now.”

For more on how private equity firms are seizing the opportunities as the global supply chain becomes more regional, click here.