Singer Equities lets branches keep brand image

PEARLAND, Texas—An outsider likely wouldn't know that Singer Equities Inc. is a big-time distributor in the industrial rubber business, sporting 37 locations and 410 employees. And the management of the company is just fine with that.

Singer is part of Pearland-based SBP Holding, which is a subsidiary of private equity firm AEA Investors L.P.

Singer has followed an acquisition strategy since 1999, but it doesn't look to have its name on any of the distribution firms it has bought, said Singer Equities President Donald Fritzinger. Instead, each of the eight platform companies it owns—along with nearly all of the bolt-on acquisitions—keeps its own name on the business as part of Singer's decentralized business philosophy.

“We don't have customers out there knowing Singer Equities as a vendor,” he said. “What they recognize and remember is Summers Rubber Co. or Texas Rubber Supply, who they've been doing business with for 60 years.”

Fritzinger said it's the brand that local customers understand, and Singer makes sure that stays in place. The staff at the corporate level is sparse, with just some financial people and a few officers.

“When we acquire a business, we want to minimize the amount of disruption that takes place,” he said. “We understand that we have the capacity to go out and rent buildings and buy inventory, but having the people is the key to the distribution business.”

Singer Equities, originally founded by Paul Singer, started on its acquisition path in 1999. After a time, the founder wanted to exit the business and retire, so the group turned to its first private equity owner.

When it grew to a certain point and needed to go to a higher level, that's when Fritzinger said it became part of AEA Investors. “They are a very strong group of people,” he said. “They help us with having a strong financial dry powder available to us for making acquisitions.”

The criterion Singer Equities uses in evaluating acquisition candidates is simple. Businesses must be profitable and have at least 50 percent of revenue driven by some degree of value-added processes, such as cutting and coupling hose, installing conveyor belts or cutting gaskets.

A specific geography isn't a top priority, as Singer isn't obsessed with having coverage in each region of the U.S.

Culture, though, is very important. The owners' motives for selling may be different. Some may be looking to retire and don't have anyone to leave the business to; some may not have been able to grow the business to the extent they wanted; and others may not have been as aggressive as they should have been.

“At the end of the day, we like to be able to understand what the culture has been within that individual business,” Fritzinger said. “And we like to be able to see some of the employees and meet the employees. In some cases, the original owner wants to stay on and will continue to run the business. In other cases they retire, and we need to make sure there are some good people there in place to keep that moving.”

Singer comes upon the potential candidates in various ways. The firm reaches out to some, vendors sometime provide an introduction, and in other cases companies approach them, he said. It also runs an ad in the NAHAD convention booklet to inform people that Singer is interested in good businesses.

“We take a subtle approach,” he said. “We don't press people and try to annoy them with constant calls.”

The best testimonials normally come from previous owners who are still working for Singer. “We let them talk, and they'll find out how we operate the business and how we do things. These predominantly are family-run businesses. If an owner is retiring, in most cases their No. 1 concern is what's going to happen to the employees. And we understand that.”

While Fritzinger said there is some assistance from the corporate level on such efforts as sharing best practices and business expansion, it does not dictate how the platform businesses are operated. “They're all in the hose business, but they may sell different products, and as a result have been engaged with one vendor for many years,” he said. “We don't come in and try to homogenize the vendor base.”

Singer doesn't release its sales totals, but said size doesn't always factor in when evaluating a business. Fritzinger said acquisitions have been as small as $2 million in sales, but he added that Singer has been targeting larger firms simply because diligence costs aren't much more for a $50 million business than for a $2 million one.

The Singer Equities president expects consolidation to continue on the distribution side of the business. He believes there still is a place for family-run distributors, but only if they can manage their working capital and model the business for the 21st century.

“They can't continue to operate and maybe think the way they did back in the 1970s and "80s,” he said. “I'll tell you what, there are a lot of great businesses in our industry that have been around for years that have turned it over to a second or third generation and are just doing a great job with the business.”

Private equity, he said, was drawn to the industrial rubber sector of distribution with the consolidation that has been going on for years. When a PE firm is comfortable with management and sees the ability to boost earnings and potentially acquire related businesses, that is where equity companies see an opportunity to increase their original investments.

But just because you're owned by private equity doesn't mean you have a giant bank roll, Fritzinger said. “You certainly have to be able to manage a degree of debt and manage your cash flow,” he said. “You're in a position where you almost act like a publicly traded business. You're certainly accountable for the financial performance of the business.”

The partners Singer Equities has been involved with, though, have provided good financial backing to be able to afford acquisitions Singer couldn't have accomplished on its own and basically have let the firm run the business.

“Both partners we've been involved with have just clearly said, "We don't understand operating these businesses,' “ Fritzinger said. “As long as the financial performance is there, they leave us alone.”