Buying and Repairing Broken and Underperforming Businesses

Eric Hamburg in article in The Suit

By A. Marie Velthuizen

View PDF

Eric Hamburg in article in The Suit

Most private equity financing firms retain the businesses they invest in only until enough improvements have been made for the firm to turn a respectable profit when the business is sold. Yet a handful of PE firms are opting for a different approach. In a trend being cultivated by a much smaller number of PE firms, distressed businesses purchased with the goal of restoration to profitability are being kept for significant periods of time – sometimes indefinitely – since a financial harvest different from the standard “return on sale” is sought by investors with rather long-term goals.

Industrial Renaissance (IR) is one of these firms opting to keep, rather than sell, the struggling or underperforming businesses they acquire. Eric Hamburg, the firm’s president explains.

“It is difficult to build a significant business that is running well. This can take plenty of money and many years,” Hamburg said. “Once that has finally been done, it is our preference to continue to own that business and continue to work with it.”

In fact, Hamburg said that his goal is to make such a marked improvement in the working and profitability of a struggling business his firm acquires, that selling it just would not even be considered an option.

IR’s website provides an extensive list of characteristics sought in a potential purchase. Fifteen descriptions make up this list, ranging from the absence of a management leader, a liquidity-constrained balance sheet, little or no earnings, long lead times, slow revenue growth, and a high cost and overhead structure. Other characteristics include fractured relationships with lenders, high inventory levels with low inventory turnovers and a documented need for operational improvements.

“Our list is a bit lengthy,” Hamburg admits. “Yet, the more of those check marks that a business hits, the more we tend to like them as a potential investment purchase. This makes us different from other investment firms that look at historical performance as a gauge to judge future performance. We tend to look forward with a business – and look toward what can be created with it.”

Perhaps the most important characteristic on that list is a quality product offering the ability – proven or unproven – to capture market share. If a firm has that, Hamburg’s interest is piqued. Add positioning in an industry with consolidation potential, and expect that Hamburg and IR are taking a good long look.
While he regularly approaches a potential investment as an interested buyer, at other times Hamburg approaches from the perspective of a CEO looking to take over and run a business.

In industry terms, it is called a “CEO-driven acquisition.”

“Many times, we find a great CEO – or he or she finds us – and they have a vision for an industry with the potential to create substantial value,” Hamburg explains. “We conduct thorough research, develop, validate and document an investment strategy and contact companies because they fit our strategy and not necessarily because they are actually for sale at that time.”

Other strategies include seeking businesses that have a “disruptive technology” but are unable to effectively market it. IR’s definition of disruptive technology is a breakthrough invention or innovation that changes the rules of competition within a particular industry by being so forward-thinking that it displaces the rest of the competition by setting everyone else back to zero.

In this scenario, Hamburg said that velocity is the key to success.

Much of the time, the disruptive technology is owned by a small company lacking the experience or ability to harness explosive market growth.

“We come in and help small companies accelerate through that growth curve by creating velocity and the execution of their business plans before the window of opportunity closes on that breakthrough,” Hamburg said.

Seizing opportunities and fixing “broken” or underperforming companies are the hallmarks of Hamburg’s two-decades plus career buying companies.

From July 1985 to March 1993, Hamburg was a senior manager with New York-based Accenture, where he led the design and implementation of business turnarounds in the United States and Europe. In 1993, Hamburg became a partner with Kidd, Kamm & Company, a firm specializing in middle market leveraged buyouts.

“I wanted to put myself in the laboratory environment learning how to acquire businesses,” he said. “But I always wanted to work for myself. So, three years later, in 1996, Industrial Renaissance was formed by putting two worlds together – my operating background and the experience I had gained in purchasing businesses.”

“The name “Industrial Renaissance” was chosen,” Hamburg said, “because it symbolizes transformation, rebirth and rebuilding.” According to Hamburg, that’s what his firm and the work of its employees are about.

This is best evidenced in the firm’s real estate division.

Hamburg, a master cabinet maker who put himself through college running a commercial cabinet business, is also passionate about old brick buildings.

Our mission is to buy and build successful businesses. We are buyers and builders of businesses, not buyers and sellers of businesses. We are focused on the acquisition of companies that are underperforming, or possess a disruptive technology, where value can be created by fundamentally transforming the companies we invest in or the industry segments in which they compete.

“I am on the lookout for vacant, brick buildings with good “bones” that can be transformed into income producing, multi-family and multi-use properties,” he said with an upbeat voice. “I love working with my hands and building things. With the financing capabilities that Industrial Renaissance brings, we can put the entire project together.”

The fact that neither Hamburg, nor anyone working for IR has ever worked on Wall Street, he considers to be a major asset for his clients.

“We do not come across as purely financially oriented,” Hamburg said. “We are highly approachable, normal people. We come across as operators – and we communicate with the seller much like we are talking to a fellow team member.”

The Importance of Buying and Building Businesses

Our mission is to buy and build successful businesses.

It takes too many years to build a great business with amazing business strategies just to turn around and sell it to an unknown buyer. That’s why Industrial Renaissance is a unique type of investor who grows businesses for future generations. We have the experience to know better than to sell your business. We don’t buy businesses to flip them. We buy businesses to build them. We care about the companies we invest in.

Industrial Renaissance is not a private equity fund or venture capital fund. We’re a team of seasoned operators and business executives who have worked in businesses ranging from manufacturing to medical devices to aerospace technology.  Our principals and senior advisors have experience in a wide range fields and know how to improve businesses and take them to the next level. They are business strategists, not venture capitalists or business brokers. You may need a CEO or a strong partnership. We’re here to provide that for you. We like to help companies with a proven product and that need coaching as well as money. We don’t select companies based on the size of revenues or earnings, or the size of our equity investment. Our team’s business mission is to buy and build large, dominant, successful businesses.

We want to create business value, not invest in businesses that are already at their peak. We like underperforming companies that have been around for a long time.  We like companies that have developed a breakthrough technology and have a window of opportunity to capture market share.  Maybe they’re looking for new management, a new business strategy, or restructuring. Our team is flexible and can work in the capacity that suits any particular businesses needs. We diligently work to create business models that can fundamentally transform the companies we invest in and the industry segments in which they compete.

At Industrial Renaissance, we’re long-term thinkers and investors. We never charge an investor management fee. Instead, our incentives are aligned with, and in the best interest of the businesses we invest in. For us to make money, all of our investment partners, underachieving and high growth companies we invest in, need to make money. That’s unique in the business investment industry.

If your company is in financial trouble, you need a new CEO, have a disruptive technology, or you’re looking for a new business strategy, please call us today at 203.254.7420.