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10 Bright Spots in Manufacturing M&A


Has the U.S. manufacturing sector seen its heyday come and go? Not yet.

By Tamika Cody

Don’t count the U.S. manufacturing industry out. For all the hand-wringing about how the sector has seen its heyday come and go, there’s quite a lot to be optimistic about, as a close look at middle-market dealmaking demonstrates. We found 10 nuggets that shouldn’t be ignored including mega private equity funds tapping into the middle market, multibillion-dollar strategic buyers hunting for environmentally friendly investments and European suitors hoping to find a way into the U.S. manufacturing market.

Textiles Spin
The U.S. textile industry went through a shakeout nearly five years ago. Strategic and private equity buyers were faced with the financial crisis and import issues, which squeezed many textile companies out of business. Since then, M&A activity has been relatively quiet but seems to be picking up.

One recent deal took place in October, when KPS Capital Partners LP bought American & Efird Global (A&E) from Ruddick Corporation (NYSE: RDK) for $180 million. The Mt. Holly, N.C. business is pegged as one of the largest manufacturers and distributors of premium industrial sewing thread, embroidery thread and technical textiles.

If more deals take place in the U.S., they will likely be done by strategic buyers, says Steve Liff, managing director at Sun Capital Partners Inc. The Boca Raton, Fla. private equity firm holds a number of textile manufacturing assets in its portfolio, including True Textiles, Performance Fibers and Frontier Spinning Mills.

“There have been a lot of strategic joint ventures between manufacturers and producers of garment and yarn,” Liff noted. A&E made a strategic move in May, when it acquired the remaining shares of A&E Sri Lanka and A&E Bangladesh. A&E bought the outstanding shares from two of its joint-venture partners, Brandix Lanka Limited and Brandot International Ltd.

Because there’s no more room for consolidation, U.S. strategic players are trying to stay ahead of foreign competitors. “The strong have survived, and now strategic partnerships are critical,” says Liff. North American textile companies, particularly cotton manufacturers, are now faced with the task of making sure that they keep labor costs low and maintain their market share. “Our cotton is priced similarly to India and is much cheaper than China,” says Liff. The managing director pointed out that Frontier Spinning’s labor costs run between six to eight percent of sales, and power sources cost considerably less than manufacturers in Central America, China and India.

All of the cost-saving efforts have made Frontier Spinning uniquely positioned in the market, especially on the apparel side. As a result, the company is being sought after by foreign and strategic buyers because of its commodity access in yarn. “We are one of the few cotton manufacturers in the U.S that remain with good market share,” says Liff. Sun Capital held conversations with various suitors for the asset, but Liff declined to comment on when the firm would be ready to exit Frontier Spinning.