Local buyout specialist attracts $43 million: Hammond Kennedy Whitney & Co. targets M&A

In 2002, it took Glenn Scolnik and his partners 85 road shows to raise $57 million for their new management buyout fund.

They just raised another $43 million with a single presentation.

“Our investors agreed we needed more money. It was a very easy fund-raise,” said Scolnik, president and CEO of locally based Hammond Kennedy Whitney & Co. “You don’t want to crow too much, because it’s not over ’til it’s over. Until you realize an investment, you only have approximations of what you’re going to do. But I’m tickled pink with the companies we’ve purchased.”

Specializing in mergers and acquisitions, HKW now has $100 million under management. In the last three years, it has bought eight manufacturing companies. Three are in Indiana. HKW has $12 million left of its original $57 million. But it needs more to continue buying new “platform” companies and staging add-on acquisitions to increase the size of firms already in its portfolio.

HKW’s lead investors were Springfield, Mass.-based Babson Capital Management LLC, which contributed $20 million, and Boston-based John Hancock Life Insurance Co., which kicked in $15 million. Babson had previously invested $20 million. The rest of HKW’s investors were also upping their previous stakes.

HKW’s specialty is finding small to midsize manufacturers and partnering with their managers in buyouts. The sellers are usually large corporations that want to divest a subsidiary or family businesses whose owners are ready to retire. HKW purchases a majority stake and requires the managers to also take a substantial slice.

“Our business model is to partner with talented, honest, hard-working management teams who want to own equity and we support them aggressively,” Scolnik said. “Roy Whitney told me, ‘I’d rather own 80 percent of a company where management owns 20 percent.’ You have to thoroughly understand that concept to understand our business model.”

“We’re not trying to say we’re the smartest guys out there. We didn’t invent this,” Scolnik added. “We’ve just stayed with this for a long time. I’d even suggest we’ve perfected it.”

Charlie Hetrick, president of Munciebased Maxon Corp., has quickly learned that HKW brings more than dollars to the table. The combustion equipment-maker had been owned by the Maxon family and its 500 employees. Retirements spurred the need for a capital restructuring.

Hetrick said HKW’s buyout last fall benefited everyone involved. After going through HKW’s lengthy due-diligence process, Maxon’s managers had no fears they’d be replaced. They knew HKW’s strategy is to give top-notch managers the tools they need to succeed.

“When we checked with other companies they purchased, we found they walked the walk as well as talked the talk,” Hetrick said. “They helped us with financial accounting and bookkeeping in the transaction. They’ve given us good legal counsel and guidance.”

Babson Capital Managing Director Bob Erwin’s relationship with HKW goes back to the 1970s. Reinvesting in HKW was an easy decision for Babson.

“We have a lot of confidence in their ability to pick the right companies. They’ve shown an ability to take these companies to the next level and create value,” Erwin said. “When we see a deal that comes from HKW, it’s wellthought-out. They’ve done their homework, and we get a lot of comfort out of that.”

Although it maintains an office in New York, 13 of HKW’s 17 employees are located in Indianapolis. Scolnik expects the new $43 million to keep HKW busy for three or four years. That means examining 200 companies a year before actually purchasing two to four.

Joe Broecker, managing director of locally based Periculum Capital Corp., helped represent Maxon in its sale. HKW’s philosophy of asking managers to buy into their own firms pays off well in the long run, he said.

“We find the deals where management is fully engaged work out better over time,” Broecker said. “It’s no coincidence that highly invested management produces better results.”