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January 10, 2013

Prophet Equity Ends Banner 2012 With Auto-Parts Platform Deal

By Laura Kreutzer | Chelsea, Mich.

Prophet Equity has wrapped up one of its busiest years yet with an investment in auto part maker Hatch Stamping Co.

Prophet's investment in the Chelsea, Mich.-based Hatch marks Prophet's fourth deal in 2012. Earlier in the year, the firm invested in medical uniform retailer Tafford Uniforms LLC, an add-on acquisition for its portfolio Public Safety Supply Resources Inc., backed a platform investment in Francis Drilling Fluids and completed another investment in USA Mobile Crane, an add-on acquisition for Allegiance Crane.

The Southlake, Texas, firm bought each of the four companies for a multiple of roughly five times earnings before interest, taxes, depreciation and amortization or less, said one of the firm's limited partners.

Founded about 60 years ago, Hatch makes parts and assemblies in the automotive industry, particularly parts in fuel, braking, roofing, and interior auto systems with complex safety critical metal components. The company has six manufacturing centers, including a facility in Queretaro, Mexico.

Prophet was attracted to the company in part because of its lengthy history of revenue growth, including through recession of 2009.

"We look for businesses that have a reason to exist that are resistant even in Armageddon-like economy," said Ross Gatlin, managing partner at Prophet. "Hatch is a business that made money in the meltdown. They never went Ebitda negative."

Ron Hatch, former majority owner and chief executive of Hatch; Dan Craig Hatch president; and Chris Parrott, chief financial officer, will have "significant roles" and ownership in the company going forward, according to a news release. The company's founders will retain an equity stake in Hatch.

Mr. Gatlin said that he sees the potential for a cyclical upswing in the auto industry but also sees opportunities for the company to grow both by expanding its market share in North America as well as in other geographies, such as South America.

The Hatch deal capped off a busy year for Prophet, which saw more than 800 potential deals in 2012 alone, thanks partly, although not exclusively, to concern among company founders over potential tax increases.

"We sent out fewer letters of intent in 2012 than in prior years, but closed on more deals," said Mr. Gatlin. "We didn't spend time on things unless it really looked like the right type of deal. In 2012, we did better at screening the right set of deals than ever before."

Founded in late 2007 by Ross Gatlin, the co-founder of Insight Equity Holdings, Prophet typically targets investments in asset heavy companies with annual revenue of less than $500 million, although many of its deals have been in companies with less than $200 million in revenue.

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