Onshoring trend appeals to Heartwood Partners in acquisition of Royal Products

Heartwood Partners I did something recently Growth investment in Royal ProductsA manufacturer and distributor of premium, branded metalworking performance accessories based in Hauppauge, New York. According to Demetrios Dounis, managing partner of Heartwood, demand for Royal Products is rising for many reasons, fueled by overseas sales, a trend that has risen in part as a result of the complex global supply chain experienced during the pandemic.

Dounis discussed the opportunities his company identified with this agreement, its growth strategy and other issues in an interview. PE Center. Below are quotes.

How did this deal come together? Were Royal Products for sale?

The owner had great success growing Royal Products and decided to complete some real estate/financial planning which determined the timing of the opportunity. It had established a strong management team and continued to invest heavily in processes, capacity and security. The owner of the company cared deeply about his employees and wanted to maintain a strong organizational culture. Unsurprisingly, he turned to people in his network and hired an investment bank with which Heartwood had developed a relationship for more than a decade.

The management team had a big say in deciding who would partner with Royal Products. While it is a competitive process, we believe we differentiate ourselves through our exclusive focus on family founder-owned businesses, our in-house team of value creation experts who come to the table with actionable growth ideas, and our unique low leverage and current cash yield model. .

How does this deal represent your investment thesis?

We view this transaction as a textbook opportunity for Heartwood. This had the right kind of process dynamics we were looking for. We have special focus on engineering products in various industries. The Heartwood engagement team has spent a lot of time in the CNC accessories industry in the past. Automation is a theme we are actively looking for and we anticipate this will play out over time; This will benefit all industry participants, including Royal Products.

What opportunities have you identified with this deal?

We believe that underlying demand is driven primarily by automation and support trends, as well as the usual route change and new product development for the end customer. This is an essential product for Royal Products’ ultimate end customer. Royal’s customers value the speed of product delivery, the performance characteristics of their products, and the quality and consistency of the product.

What are your organic and inorganic strategies for growth?

Additional acquisitions will be part of our growth thesis as we move forward. New product development continues to be a key focus of the management team, which Heartwood is excited about. We will also seek to support management and continue to invest in growth and people.

Do you have anything similar to this company in your portfolio?

Yes, our team has deep experience investing in and scaling industrial manufacturing businesses. As an example, our investment in Premier Manufacturing has many parallels (Premier was part of HighBar BrandsWe successfully debuted in December 2023).