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Deal of the Year, Small Market, 2015: High Road Capital Partners

In 2011, High Road became the third private equity owner of Handi Quilter Holdings Inc. The investment came from High Road’s debut fund, which raised $152.9 million in 2007.

North Salt Lake, Utah-based Handi Quilter develops and makes quilting machines geared to the consumer market. Each appliance looks like an oversized sewing machine that lets users add decorative stitching to their quilts, said Bob Fitzsimmons, High Road’s managing partner.

“Some people still do it by hand, but with the quilting machine you do them much more quickly,” he said.

Founded in 2007 by former Riverside Co executives, High Road was attracted to Handi Quilter’s management team, led by CEO Mark Hyland and Darren Denning, then COO and CFO. “They’re a really effective team,” Fitzsimmons said.

Though two other PE firms came before High Road, Fitzsimmons believed there was still lots of potential left in the quilting market. He estimates there are 10 million to 20 million quilters in the U.S. but only about 200,000 have the machines.

“This was even more true in 2011,” he said. “Quilting machines are under-penetrated relative to the population of quilters.”

Makers market

Professional quilting machines are big, typically 20 to 24 inches in size, and can cost about $20,000. Handi Quilter provides devices range from 16 inches to 24 inches and are much cheaper. On the low end, a Handi Quilter machines can cost as little as $6,000, while high-end machines can go for as much as $22,000, Hyland said.

To buy a Handi Quilter, users typically visit one of the 3,500 quilting stores around the country to learn about the machine and place an order, Hyland said. The catch? There are only 360 stores authorized to sell the Handi Quilter. “Still a lot of room to penetrate,” Fitzsimmons said.

Hyland, who spoke to Buyouts from the American Quilter’s Society’s Quilt Week conference in Lancaster, Penn., also touted the untapped market for quilters. Most are women, predominately in their 50s or 60s. Hyland said he isn’t a quilter but is married to one. (He’s also the author of Help! I married a Quilter.)

“There are 10 million quilters in the U.S. alone,” Hyland said. “That’s a big population of very dedicated, very excited people who love their craft.”

Though there are some large players, like Baby Lock and Singer (which is owned by SVP Worldwide, a Kohlberg & Co portfolio company), the quilting market is dominated by small, family-owned companies. “This drives a lot of excitement and passion,” Hyland said.

The investment

During High Road’s ownership, Handi Quilter grew organically and didn’t take part in any add-on acquisitions, Fitzsimmons said. “We considered a few deals, but it never connected,” he said. Still, revenue grew by 72 percent, while EBITDA nearly doubled. Staff also increased by 50 percent.

Handi Quilter spent two years and millions of dollars in research developing a professional version of its machine, Hyland said. In the fall of 2014, the company introduced the Infiniti 26, a larger machine with a 26-inch throat that sells for $17,995. The product vaulted the company into the professional quilting market, he said.

“It’s been well received by those that are looking for that sort of device,” Hyland said.

The company also benefited from moving to a 71,500-square-foot plant in North Salt Lake in July. The move helped Handi Quilter streamline its manufacturing and build some training space.

“It’s almost become a destination place where women will come to take classes,” Hyland said.

Favorable market conditions spurred High Road to sell Handi Quilter. The firm hired Piper Jaffray during the summer to run an auction that generated interest mainly from private equity firms, Fitzsimmons said.

“Handi Quilter has a nice niche market with a passionate customer base and a lot of room for growth,” he said. “Those are characteristics that private equity firms find attractive.

In December, High Road sold Handi Quilter to Blue Point Capital Partners. High Road wouldn’t disclose how well it did on its investment. “It was a very good deal,” Fitzsimmons said.