Heat Transfer Tubular Products
The owners of a value-added distributor of tube bundles and related products for use in heat exchangers are looking to retire with a 100% sale transaction.
Headquartered in Conroe, Texas, and in business for over ten years, Heat Transfer Tubular Products, LLC (”HTTP”) is a value-added distributor of tube bundles and related products for use in heat exchangers, condensers and boilers, with further processing capabilities including cutting, finning, bending and heat treating. The Company’s primary customers are OEM’s that service the refinery, chemical and petrochemical industries.
UNDERSTANDING OBJECTIVES AND CHALLENGES EARLY-ON
The founders were still actively involved in the day-to-day operations and were looking for a 100% sale transaction when Romanchuk & Co. was engaged to be the exclusive sell-side advisor. With over a century of experience in the tubing industry and nearing retirement, the owners were beginning to think about their eventual exit and a succession plan for the company they had built from scratch. Like many owners, they were not just financially invested in their company – but emotionally invested as well, wanting to ensure that they would leave their employees and legacy in capable hands going forward.
The owners were very successful in growing HTTP and capturing more market share over the last several years; however, there were some external factors at play that made the marketing of the company a bit more challenging, including the oil and gas price volatility and the uncertainty of steel tariffs. Additionally, we knew with such a strong management team that “owner dependence” may be an issue for some investors. After discussing their objectives, we set out to analyze their business in detail to address these issues.
TELLING THE RIGHT STORY
We were able to successfully portray the relationship of these products to the recurring maintenance related activities of the facilities as tube bundles must be replaced regardless of the current spot price of oil. Additionally, we examined the effect of steel tariffs on their cost of goods and margin profiles. Given the recurring nature of these products, we found that customer demand was inelastic to the increase in prices, and therefore, margins were not negatively impacted.
Lastly, we worked with the owners to understand the current succession plan with the team they had in place, and were able to identify the gaps that an incoming partner would need to fill within the first few years. This turned out to be a very important step in the process, as the owners were able to leverage their industry relationships, and bring in a new CEO with extensive industry experience to run the business upon closing, ultimately allowing them to decrease their involvement in the business earlier than they had originally thought possible.
“Romanchuk & Co. was very involved every step of the way, and being the first time we had sold a company, their expertise was indispensable. Their knowledge of the industrials space and the different buyers they were able to bring to the table led us to finding a great partner in Arch for the next phase of HTTP. We were also quite surprised at the amount of the workload throughout the process that they handled right through the closing process, saving us a huge amount of time, money and aggravation.”
- Robert Sokulski, Owner of Heat Transfer Tubular Products
Unfortunately, no M&A transaction is flawless, but having a clear understanding early on of the owners’ objectives and the potential challenges a deal may present, both internal and external, will help increase the chance of a successful close.
The above testimonials may not be representative of the experience of other clients and should not be construed as a guarantee of future performance or success.