NEW YORK – The private equity firm, KPS Capital Partners, co-founded by Greek-American Michael Psaros who also serves as the firm’s Managing Partner, was featured in a Bloomberg article for buying two companies in recent months, and for favoring “old-line iconic brands, they don’t use a lot of leverage and they don’t mind working with unions.”
KPS “earns money from companies that make actual things — Humvees and golf clubs, treadmills and lawn mowers,” Bloomberg reported, adding that “they’re also staying busy at a time when other PE firms have put big deals on hold,” as “KPS is poised to buy Briggs & Stratton Corp., the bankrupt maker of landscaping equipment, and in the past three months the $11.4 billion firm purchased Baker Hughes Co.’s oil pump business and bought Humvee maker AM General from Ron Perelman’s MacAndrews & Forbes.”
KPS co-founder Psaros, 53, said, “Since Memorial Day, we have been all offense, no defense. We have been throwing the ball deep downfield,” Bloomberg reported, adding that Psaros is a “diehard Pittsburgh Steelers fan.”
Founded in 1991, KPS “has been narrowly focused on investing in manufacturing firms,” Bloomberg reported, noting that “its holdings include golf equipment producer Taylor Made Golf Co. and treadmill maker Life Fitness, and unlike many of its rivals, it’s willing to invest in companies that may lack predictable cash flow or require extensive turnarounds,” and “it typically keeps positions for around five years.”
Kirkland & Ellis lawyer James H.M. Sprayregen, representing New York-based KPS in its bid to buy Briggs & Stratton, told Bloomberg, “KPS is interested in companies with severe operational problems, a lot of other private equity firms are not. They’re not just fooling around with the capital structure.”
“Major fundraising last fall put KPS in the position to hunt for new, bigger deals now,” Bloomberg reported, adding that “the firm raised $6 billion for its fifth special situations fund and $1 billion for a vehicle devoted to mid-sized companies in October, more than doubling its assets under management.”
The pandemic is also not ideal for business deals. “Psaros called the pandemic the worst business environment the firm has ever confronted, but said KPS’ willingness to consider companies with trouble generating cash means it hasn’t had to tweak its investment strategy,” Bloomberg reported.
“The magic of KPS is that we cause the creation of those cash flows, we don’t buy those cash flows. The market has come to KPS,” Psaros told Bloomberg.
KPS also “avoids overloading its newly acquired targets with debt, which helps now when investor appetite for risky leveraged buyout debt is low,” Bloomberg reported.
Steven Neil Kaplan, a professor at the University of Chicago Booth School of Business studies private equity and noted that “KPS is more likely to buy things that are having some problems and they try to fix them. Because they are buying things that are a little more hairy, they put less debt on their companies,” Bloomberg reported.
KPS also regularly negotiates with unions, and has “earned accolades from United Steelworkers, United Auto Workers and the International Association of Machinists and Aerospace Workers for its willingness to cooperate,” Bloomberg reported, adding that “last month, United Steelworkers, which represents employees at Briggs & Stratton, said KPS’s acquisition of the engine-maker will save hundreds of jobs at the firm’s Milwaukee manufacturing plant. A bankruptcy auction is set for September 1.”
“This isn’t Elliott, where you get in the clutches of them and you’ve really got troubles. With KPS, it’s going to be as collaborative as it can be,” said Thomas Conway, president of the United Steelworkers, which represents workers at multiple KPS companies, Bloomberg reported.
“The 10 companies KPS owns employ a collective 26,000 people,” Bloomberg reported, adding that “before KPS went hunting for new deals, it had to make sure its existing portfolio companies could weather the pandemic, said managing partner Raquel Palmer.”
KPS “asked its companies to develop plans for navigating a prolonged economic downturn,” Bloomberg reported, noting that “it also held weekly liquidity meetings with companies to address any looming balance sheet problems.”
KPS is an 80-person company, so the COVID-19 pandemic restrictions on travel created challenges during the scouting process for new business, Bloomberg reported.
“The firm turned to its local operations groups — teams that normally work directly with portfolio companies — to perform in-person due diligence,” Bloomberg reported, adding that the “tactic helped KPS inspect targets in Pennsylvania and Europe, though the company hasn’t been able to recreate the relaxed dinners with company management that often follow a day of factory observations and formal meetings.”
“That’s one you can’t do over Zoom,” Palmer told Bloomberg, adding that “You can’t have a glass of wine and ask, ‘What would you do with this business if you had a blank check?’”