MiddleGround’s Alco purchases $8m-plus add-on

The private equity firm’s platform business hit $100m in revenue in 2019 and has now completed an add-on.

MiddleGround Capital’s Alco Manufacturing, North America’s largest manufacturer of hydraulic machine parts, snapped up Manth-Brownell in a deal valued at around $8.5 million, PE Hub has learned.

The deal, which closed August 11, marks the fourth transaction completed this year by the Lexington, Kentucky-based PE firm. MiddleGround has now deployed more than half, or $241 million, from its $459.5 million debut fund, partner John Stewart told PE Hub.

Manth-Brownell, a single facility manufacturer based out of Kirkville, New York, produced $15 million in revenue last year, according to Stewart. Alco, acquired in July 2018, generated $100 million in revenue during the same period.

MiddleGround paid a market multiple for this asset, the source said. “The purchase price was mainly based on the value of the business and its real estate.”

Companies like Manth-Brownell typically trade at 7.5-9 times EBITDA, the source explained.

The PE firm was introduced to the family-owned business operating for over 60 years by a broker pre-covid-19. With the current owners retiring, MiddleGround bought 100 percent of the precision machine parts manufacturer in an all-equity deal.

“Since there won’t be multiple CFOs [or] CEOs, we are making some savings there,” Stewart said, explaining that the team intends to keep all the hourly employees.

With respect to due-diligence, MiddleGround conducted Zoom meetings, in addition to visiting Manth-Brownell’s on-ground facility in June before signing the letter of intent in the latter half of the month.

“It wasn’t a broad auction; for these types of businesses, there are not a lot of buyers,” the PE partner said, referring to Manth-Brownell’s small-scale industrial operations.

Much like the Elyria, Ohio-based platform, the acquired business serves the same three big clients in the industrial and consumer end markets. While the shared synergy with the customers was a plus, for Stewart, Manth-Brownell’s CNC machine capabilities also pushed the deal forward.

Looking ahead, the B2B industrial-focused PE firm wants to continue investing in facilities that have owner operators nearing retirement. “Investing more capital is not a feeling they have,” he said from his home in Lexington, Kentucky.

Action Item: Check out MiddleGround’s latest Form ADV