Drawn to its growing replacement parts business, boutique private equity firm Stratford-Cambridge Group snapped up Jet Edge Waterjet Systems in its latest bet in the engineering components arena.
The deal process concluded last month for an enterprise value of over $5 million, according to a person familiar with the transaction. The business generates sub-$5 million in EBITDA, the person said.
The investors learned of the target in May last year from its Milwaukee-based sell-side advisors, CIBC Cleary Gull, ultimately signing an LOI early September.
“We have a strategy of acquiring smaller industrial manufacturers that have some sort of engineering component,” said Jay Freund, managing director of SCG, speaking from Ohio.
An experienced investor in equipment designers and manufacturers, SCG’s six previous acquisitions include Hy-brid Lifts, a construction lift provider, and Speedgrip, a component manufacturer for the precision machining industry.
This investment, supported by debt or senior leverage from Detroit’s Comerica bank, marks the seventh acquisition for SCG since its inception in 2009.
Founded in 1984, the St. Michael, Minnesota, waterjet manufacturer sells equipment to machine shops that serve the automotive, commercial aerospace, building products and other sectors. Waterjets are generally used to cut through materials and produce high-precision and high-tolerance parts.
Jet Edge’s growing replacement or after-market parts business, which constitutes roughly 65 percent of its revenue, appealed to the lower-mid-market firm
“Many customers end up using an abrasive – a very finely ground sand – with really high-pressure water which creates wear and tear,” SCG’s MD said, referring to the aging process for the pumps and nozzles.
That said, revenues last year were somewhat flat partially due to the slump experienced by the airline sector.
“Certain segments of the customer base were slightly down but that was expected,” Freund said.
With the investment, SCG aims to improve the performance of the Waterjet cutting systems through its machine accessories, which are sold through the website.
The firm also intends to ramp up its e-commerce business, Freund said, “We hope to become better digital marketers.”
Over the course of next year, the PE owners will assist senior management in the introduction of a new piece of equipment that would complement its existing line and extend the geography from a service standpoint.
Add-ons will be opportunistic, and the hold period would “probably be seven to eight years; we have a long-term focus,” Freund said, pointing to the flexibility enjoyed by independent sponsors investing on a deal-by-deal basis.