Management Buyout / Corporate Divestiture
Megtec Systems, Inc.
MEGTEC (the "Company") of De Pere, WI is a global leader in highly-engineered industrial and environmental process solutions and services. The company's solutions provide a range of benefits including air pollution control, carbon management, energy storage and recovery and environmental compliance. With over 20,000 customer installations throughout the world over its 40+ year history, MEGTEC has successfully developed a premium brand and market position with industrial companies in need of environmental controls and sustainability solutions.

Sourcing, Transaction and Opportunity
This corporate divestiture from Sequa Corporation was completed on a negotiated basis after HRCP was introduced to the operating manager via Mark Panozzo, a long-time Executive Affiliate of the firm. Several months prior to the acquisition, Sequa was taken private by Carlyle Group's aerospace and defense industry team in a highly leveraged transaction which turned MEGTEC into a non-core asset of Sequa.

The opportunity to create value in the investment existed in four areas: (i) repositioning the company's manufacturing footprint away from higher-cost / lower-productivity jurisdictions, (ii) targeting sales and product offerings towards higher-growth industries and healthier customer bases, (iii) shifting the company's revenue mix towards aftermarket services by leveraging its brand, engineering talent, and installed base in order to increase margins and revenue stability, and (iv) a strategic focus on working capital management.

Value Creation
Strategic Redirection. Under HRCP's ownership, MEGTEC has been transformed from a supplier of thermal and mechanical auxiliary equipment primarily to the web-offset printing industry into a provider of integrated industrial process systems, value added solutions, and services focused on environmental protection and sustainability. This transformation is nowhere more evident than in MEGTEC's current, widely diversified customer base versus its 2007 base dominated by web offset printing press OEMs. The Company achieved this success through a combination of strategic investments in new people and new products. Plant closures and new compensation policies reinforced these strategy changes.

Lean Thinking. Although MEGTEC employees had already been trained in the principles of Lean thinking, HRCP was able to leverage that groundwork and apply these same Lean principles into working capital management which resulted in a $15 million reduction in working capital. In addition, HRCP employed the design, process engineering and quality assurance principles of Lean to reposition the company's manufacturing footprint and customer base. These initiatives resulted in major improvement in labor productivity and EBITDA margin.

Add-Ons. Initiatives pursued under HRCP ownership included acquiring the intellectual property of Ross Air Systems in 2009 and expanding the Company's environmental solutions product portfolio to include particulate controls via the acquisition of Turbosonic Technologies in a take-private transaction completed in 2013. In the aggregate, the acquisitions contributed approximately $20 million of incremental revenue and cost the shareholders less than $4 million of investment capital.

HRCP Contribution

  Implemented new compensation programs
  Closed 100% of European manufacturing and expanded Asian footprint
  Completed two add-on acquisitions
  Introduced three new products / process technologies
  Rationalized product lines around pollution control technologies
  Invested in aftermarket organization to drive stability and profit
  Implemented global cash management processes to strategically manage working capital
  Refinanced credit facility which made many of the above changes possible

Current Results
As a result of the above initiatives, EBITDA has increased by 25% and EBITDA margins increased from 6.5% to 10.5% while revenue has declined during the five years HRCP has owned the company. This growth was leveraged by material improvements to the company's cash conversion cycle which allowed debt reduction of 75% since closing despite enduring the tumultuous economic conditions brought on by the 2008/2009 recession. MEGTEC is fundamentally stronger than at any point in its 40+ year history and is well positioned to benefit from the demands of new environmental regulations both domestically and abroad as the global economy continues to recover and multinational companies continue to manage sustainability demands.

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  MEGTEC Systems, Inc.
DePere, WI


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