The View From The Shop Floor

Larry Gies’s path to private equity began on the manufacturing floor. That experience would turn him on to a lifelong passion. In fact, he loved it so much he vowed to run his own manufacturing company someday.

As the president and CEO of Chicago- based Madison Capital Partners, Gies has found what he was looking for—and then some. He has led the acquisitions of 19 manufacturing companies and presided over numerous restructurings and transformations of portfolio companies. Another way to look at his experience is to count 12 successful sales and five partial realizations to date.

“Larry Gies is a genius company owner, not just a dealmaker,” says Lawrence Golub, president of New York leveraged finance firm Golub Associates Inc., which has invested in Madison Capital’s deals.

While it buys and sells companies like most buyout firms, Madison Capital is a fundless sponsor that finances investments deal by deal. Much of its capital actually comes from Madison itself, plus a few loyal institutions and former CEOs.

The firm has had a strong history in plastics manufacturing, but its reputation derives from its penchant for forming teams that dive in to manage or help operate businesses that then become all-consuming undertakings. “As operators, they are rock stars,” Golub says.

Since inception in 1994, Madison Capital has posted a net internal rate of return of 90%, or 5 times its invested capital. Those results have left the firm in very good standing with investors.

“They really do an exceptional job of improving operations—the magnitude and the speed with which they do that has been extraordinary,” says Chris Dowd, a managing director at Springfield, Mass.-based Babson Capital Management LLC, the investment management arm of Massachusetts Mutual Life Insurance Co. Dowd says his firm has co-invested in four companies with Madison since 2002.

Gies grew up in a farm town two hours outside Chicago. He graduated from the University of Illinois and took his M.B.A. at Northwestern University’s Kellogg Graduate School of Management with concentrations in strategic management and marketing. He then joined Deloitte & Touche. At one point he worked on behalf of the German government, trying to market a high-tech region in East Germany to U.S. investors.

But while working for Chicago restructuring investor Michael Heisley, the majority owner of basketball’s Memphis Grizzlies, Gies got a taste for buyouts. Back then, he didn’t know it as private equity. Heisley’s investment vehicle, Heico Cos. LLC, specializes in turnarounds, mostly in the rust belt. Gies says Heisley taught him much of what he knows. “One day, I asked him what he thought if I were to start my own firm,” Gies recalls. “He said to me, ‘Go do it, kid.’ ” Gies adds, “He was probably relieved, because I wasn’t the easiest person to manage.”

At Madison Capital, Gies isn’t the only one with a manufacturing pedigree. Managing director Richard Osborne formerly headed New York Stock Exchange-listed Scotsman Industries Inc., a manufacturer of commercial food equipment. CFO John Udelhofen was CFO of the Willowbrook, Ill.-based Plastics Group Inc. And senior vice president David Ball came from numerous manufacturing concerns.

“I think that is why we have a hard time keeping people in the office,” Gies says. “They all want to be on the
plant floor.”

He isn’t kidding. In May, Madison Capital acquired Germany’s Mannesmann Plastics Machinery AG, the world’s largest manufacturer of machinery for plastics and rubber production, for about $900 million. Osborne now serves as CEO based in Munich, while another principal works directly for the CFO on certain projects that will serve customers. At any one point in time, Gies could be on a plane to Munich or on his way back.

At API Heat Transfer Technologies Corp., a Buffalo, N.Y.-based maker of industrial heating products with about $100 million in annual sales, the growth resulted from streamlined manufacturing, new products and customers and new facilities in China and in Germany. Madison Capital bought the business from Danaher Corp. in 2002 for $66 million, then sold it to Audax Group last June for an undisclosed sum.

Another company, Dynisco LLC, a Franklin, Mass., maker of auto components that Madison acquired in 2000, was also sold to Audax in 2004 as a much-improved business. At the time of the purchase, Dynisco had not introduced any new products over the preceding three years. Growth and profits were lagging. Madison helped jump-start global research and development that led to new products. The company made manufacturing leaner and began sourcing from Vietnam and South Korea. It also acquired complementary businesses.

Dutch plastic injection maker Synventive Molding Solutions saw similar changes after Madison bought it in 2003. Unprofitable in North America and losing market share, the company focused on the automotive industry and improved production processes. It built a facility in China and reorganized the Asian sales program. Two years later, it was sold for a profit to Advent International Corp.

At MPM, which received $155 million in buyout equity, the hope is that Madison’s manufacturing experts can apply their knowledge of the plastics industry to strengthen the company, which Gies claims has the best brands in plastics machinery.

With all the heavy lifting, Madison’s portfolio companies boast more than 50% revenue growth on average and Ebitda growth of nearly 200%. Madison tries to position a business so that the next owner may also profit from it, says Gies. That may explain why Madison has acquired from the same seller and sold to the same buyer multiple times.

As he points out, “That’s the strongest endorsement one can receive.”

By Vyvyan Tenorio
The Deal