Hi-Tec Profiles is a custom metal fabricator. With 80,000 square feet of facilities and 60 full-time staff, the company often works as a subcontractor to other Saskatchewan-based manufacturers. Trent Meyer, Hi-Tec’s president, and Jeff Linner, a partner at PFM Capital, recently discussed PFM’s investment in Hi‑Tec.
Why did this deal make sense?
Jeff: Hi-Tec’s two founding partners were looking to retire when we were first introduced to Hi-Tec in 2011. They had a strong management team that was running the business. The thing we really liked at the time was that it provided a wide range of industrial exposure rather than manufacturing a single product. We also liked that the company provided sustainable and attractive cash flows.
What was the nature of the investment?
Jeff: Ultimately, the founding partners gave us an opportunity to take 50% ownership. The management team owned the other 50%. We’ve now increased our ownership to 65% as some of the management team retired. Trent joined the ownership team two years ago when he was hired as president.
Trent: From my own perspective, becoming a partner in the business was an attractive opportunity. It was something I had always wanted to do and it was important for PFM to make sure our interests were aligned.
What is it like to work with a partner that owns more than half the company?
Trent: As someone coming into a leadership position, it was clear to me that PFM knew the company inside and out. They were straight about the situation and there were no surprises. The succession went down the way we hoped it would.
Jeff: We’re often asked how much we get involved in a business. Ultimately, we find that management keeps calling us for advice.
Trent: PFM is not an operator. They’re an investor. They expect performance. They expect me to communicate with them. And they expect me to take care of the business. I get the support that I need but I don’t have to report on the minutiae. I’m able to make quick calls on important things. If I’m facing a situation that I don’t have experience with, PFM has invested in lots of companies and they likely have seen something like this before. So we have discussions and come up with a plan.
What is it like to work with a partner that is a source of long-term financing?
Trent: I’ve had some sleepless nights as we work through challenges and a few opportunities. But that’s what I signed up for when I bought into Hi-Tec. Some decisions I have to make do not have an obvious correct path forward. PFM is in this for the long term, and Jeff and I can talk through it and come up with a mutual vision for what needs to happen.
Jeff: One of the things in our model is that we don’t have a set timeframe for ownership. So with Hi-Tec we spent the first seven years harvesting cash flow. Recently, it became clear there were emerging opportunities for the business and so a decision was made to invest in new equipment. We’re working with management as they consider how to expand, whether through complementary product lines or new markets. We are willing to support the company as it prepares to grow.
What advice do you have for owners who require capital?
Trent: It comes down to the capacity of the existing people to run the business. You have to be prepared. Companies don’t often have a successor. There are a lot of fantastic companies that have nobody left to run them once the owner retires. If you see yourself exiting the business in five years you have to start cultivating that relationship with a private equity firm now. They can bring someone in to run the business but it takes time to put a deal like that in place.
Jeff: When considering a sale to a private equity firm, consider what type of people they are and how they make decisions. That defines the kind of relationship you’re going to have down the road. It’s important if the exiting owner retains an interest or if they care about the future of the business and the employees.
Trent: Absolutely. Get to know the investor. Understand their expectations. You need a level of trust. Things might not always be easy, but you want your partner to be fair.
Interview has been edited for brevity and clarity.
First published in the September 2020 edition of The Business Advisor.