Inside the Deal: How Finding Executive First Landed Chemicals Deal
By Michael Pfeffer, managing director and co-founder, Post Capital Partners

Partnerships with great executives make successful investments. In the fall of 2007, we had a great first meeting with Phil Johnson, a 25-year veteran of the chemical industry, who was looking for an equity partner to help acquire a company that he had identified. Phil had deep expertise in the chemical industry and was the former CEO of Dixie Chemical, with prior senior management experience at Exxon Mobil Specialty Chemicals and Hercules.

We liked Phil, and his industry background was clearly impressive, but ultimately the company he identified wasn’t for sale at a reasonable price. Because our firm employs an executive first investment strategy, and we are always looking to meet talented operating executives, we proposed working together and suggested that Phil build an investment thesis that could apply to a larger universe of possible targets. Given Phil’s background, he believed there would be ample opportunities in the water industry. Phil said he would do some research and then we could talk again.

Weeks passed, and despite our follow-up, we never heard from him. Many months after our initial meeting we found a specialty chemical business in the water treatment industry. We immediately asked Phil if he would like to partner with us on the opportunity. For two months we worked together to evaluate the company. In the end, however, supplier issues prevented us from buying the business. This story might have ended there, but fortunately for us and for Phil, it didn’t. Unbeknownst to us, Phil had been working on his investment thesis, but hadn’t circled back with us because he was suspicious of private equity firms in general and didn’t fully understand our executive-first strategy. Working with us on the deal we brought to him made Phil comfortable with us and our approach. He said later, “I’ve met with many PE firms and they all say, ‘Bring us a deal and maybe we will back you,’ but you guys really valued and wanted to partner with me!”

We then got down to business and launched a formal search together around Phil’s strategy. Through our own internal marketing, Phil’s industry contacts and the services of a buy-side banker, we ultimately looked at more than 40 companies, submitted five bids, and signed two letters of intent. So, more than two years after that first meeting with Phil, we acquired BHS Marketing (now BHS Specialty Chemicals), which manufactures and distributes chemicals for the cleaning and sanitation of food processing facilities and for water and wastewater treatment.

Acquisition
The tone was good from our first call with BHS Specialty Chemicals’ co-founders, Bruce Schechinger and Michael Merlo. Days after the call, Bruce took time from a business trip to Houston, where Phil lived, to meet Phil in person. After a three hour dinner, Bruce and Phil realized that they had complementary skills that could be used to grow BHS Specialty Chemicals even faster. Based on his management experience and deep background in the specialty chemicals sector, Phil developed a compelling growth strategy that repositioned the company as a higher-value manufacturing business, with a strategic focus on clean water and food safety. Upon closing, Phil became CEO of BHS Specialty Chemicals’ new holding company and Bruce and Michael remain fully involved in day-to-day management.

Since closing, the company’s revenues are up 50 percent, including the impact of two add-on acquisitions that helped enhance the company’s capabilities, with more add-ons anticipated. It is clear that Phil’s role as our executive partner in sourcing BHS Specialty Chemicals, leading the due diligence and mapping out the strategy and operations, was critical. Without Phil, we would not have pursued the company. But, given Phil’s expertise, it became a feasible and, ultimately, highly successful investment.

About Post Capital Partners, LLC
Post Capital Partners (http://www.postcp.com) is a private investment firm that makes both minority growth and control investments in companies with a minimum of $10 million of revenue and $2 million of EBITDA. Post Capital primarily employs an “Executive-First” deal sourcing and investment strategy in which they pursue growth capital investments, management buy-outs, and “Executive-First” platform searches. Based in New York City, Post Capital invests a committed capital fund with top-tier institutional and sophisticated private investors.