New Mountain Capital acquires Gelest

MORRISVILLE, Pa.—Growth can be quick, but sometimes, it takes patience.

That's one of the reasons that led Gelest Inc. President Barry Arkles to partner this year with New Mountain Capital, a private equity firm that currently manages approximately $15 billion in assets.

"The simplest way to put it is that New Mountain has made investments in life-science-based companies, and we had seen how they handled themselves in their partnerships," Arkles said. "It appeared they had a patient approach in the private equity area."

The partnership, announced in April, gives New Mountain a controlling interest in Gelest, and provides Gelest with capital for expansion and growth. While the total investment is undisclosed, "this is a significant investment for us," said Andre Moura, managing director at New Mountain.

New Mountain, which was founded in 2000, has been working in the specialty materials industry since about 2008, and first heard of Gelest through another invested company, NuSil Technologies, which also works in specialty silicone materials, Moura said.

"The NuSil management team always looked up to Gelest, and Dr. Barry Arkles … as just a very strong leader in the space," Moura said.

New Mountain began a dialogue with Arkles, and investment discussions really took off about last spring. At that point, they started talking about potential plans, including acquisitions, expanding sales and marketing resources, and working in new product areas "to drive a growth strategy," Moura said.

Gelest was an appealing choice for New Mountain, not just because of Arkles and his reputation in the industry, but its other experts as well, Moura said.

"Gelest truly has the world-leading experts in highly specialized silane chemistries," Moura said. "We were impressed with the Gelest team's knowledge of their markets, their products and their molecules."

Beyond expertise and reputation, Gelest also came with brand awareness and strong financial performance, he said.

"We were just blown away by the strength of the brand and the strength of the company. We believe Gelest is a fantastic platform to build off of," said Moura.

Long development cycle

For Arkles, the investment means having the capital to deal with the lengthening amount of time before a product can hit the market. There's a long period between the development of the product concept, then passing regulatory barriers, then testing with end users and finally reaching the market, he said. That amount of time has stretched because of more regulatory barriers and increased sensitivity to liability for end users.

"The dilation of time has practically tripled," said Arkles. "If you have a product you would think before would take two years to enter real commercialization, we're talking six."

For example, Biosafe, a new silicon-based anti-microbial from Gelest, is being announced after 10 years of work to pass regulatory barriers and testing.

Biosafe, a polysilsesquioxane quat, has bacteriostatic, fungicstatic and algistatic properties, and can be used in products that come into contact with food. According to Arkles that makes it a "dual-jurisdiction" material because the Food and Drug Administration is concerned about the toxicity and impact of the material on individuals consuming contacted food, and the Environmental Protection Agency is focused on what happens to the environment after the material is thrown away.

Biosafe works differently than two other antibacterial materials in the market, triclosan and silver, which are both on some level toxic. Rather than poisoning microbes, Biosafe is a physical disruptor of cell membranes.

"When cells touch the material, it's sort of like them hitting a bed of needles, and it ruptures the cell membranes so that it only kills what it contacts," Arkles said. "It's a material that is just now available for use in rubber and plastics."

Some application examples for Biosafe could include tubing for conveying beverages, cutting boards or water-filter housings.

Getting the product through the regulatory hurdles took a lengthy period of time, widening the gap between developing the product and being able to sell it, Arkles said.

"That one may be more extreme, in terms of the amount of time you need to sell significant amounts of product," Arkles said. "But if we're going to be profitable in a life sciences business, we have to have a way to cover the costs between product concept, identification that the product concept is a desirable one, and the ability to sell the material in volume. It's a long process."

Added infrastructure

Another reason for the private investment is to develop the infrastructure to market new Gelest products in a global setting, Arkles said, especially because one focus of global expansion is Asia.

"Many of the companies we deal with are global in nature, and they want a global rollout (of new products), and that means we have to do some 'boots on the ground' in overseas locations," he said. "That's again an upfront capital requirement that's going to take a while before we get a return."

Another area of expansion will be fully formulated, or "performance" products. Rather than looking for the chemistry behind the product, as the industry has restructured, "people just want the solution," Arkles said.

"What we really need to do now is understand that if we're going to reach the market, it's going to go through somebody who is a processor of rubber or plastics to make the device," he added. "We really need to give them something, enough confidence that they can really put it in their injection molder or put it in their extruder or decide exactly how they're going to do the compounding to get the fabricated part that has the performance anticipated. We cannot simply give them technical specifications."

Further product development will continue in medical sciences markets, Moura said.

"The pharma biotech space, we think, is ripe for our products," he said. "I think the company really has more of a life sciences bend to it today, and that's something we want to double down on, and go after more areas within life sciences broadly."

Aiming for growth

Another major focus is company growth, with action planned in the next two to three years, according to Moura.

"We are going to pursue an expansive acquisition strategy, and we will work to find other companies with similar qualities to merge with Gelest," Moura said. "You're going to start seeing things happen in the near term. We're not sitting on our hands. I can tell you that we're looking at a number of really interesting opportunities right now."

Along with New Mountain's interest, all of the active Gelest management still has a significant stake in the company, with no initial changes in management planned, said Arkles. As part of the company's growth, there might be some reorganization in the future consistent with the transition to a larger company.

"We expect even if the roles change, essentially everybody pre-acquisition will be in a significant role post-acquisition," Arkles said.

Some growth already has started, with expansion during the last year at Gelest's 22-acre main facility in Morrisville, including production, warehousing and research, said Arkles. Gelest also will be adding jobs in 2017, with about half of those jobs going to research and technical support, and the rest split between logistics and production. Currently, Gelest has 130 employees.

"We're really very positive," Arkles said. "We just feel that this was the right partner for us on this one. We looked at a lot of private equity companies and we've also seen what the different styles are. We're just very enthusiastic about the New Mountain people, their energy and their overall portfolio."