Falfurrias Capital Partners investing in electrical-power sector

Posted on March 14, 2013

Falfurrias Capital Partners is making a play in the power industry, creating a holding company to acquire transmission-equipment manufacturers and hiring a former Siemens executive to run it.

In its first deal, the investment firm’s new North American T&D Group has purchased Instrument Transformer Equipment Corp. in Monroe. The 20-year-old company manufactures current and voltage instrument transformers and other equipment for utility and industrial customers. It has about 60 employees.

Terms of the deal weren’t disclosed.

The goal is for North American T&D to build a business in the production of transmission and distribution equipment for the power industry. The company plans to purchase four to six small manufacturers and establish a complementary network of electrical product companies, says Falfurrias partner Ed McMahan Jr.

ITEC and the other acquired companies will retain their brand identities and continue to operate as independent manufacturers. But they’ll be tied together at the back-office end of the business.

The key to the T&D Group operation will beDavid Pacyna, who retired last year as chief executive of Siemens Power & Distribution Inc. He will lead the investment strategy, focusing on acquiring and growing U.S. companies that supply equipment for the electrical grid.

“We are looking for small, local businesses with great products and first-class reputations for serving utility customers,” Pacyna says. “We will take the strength they have in customers and give them a path to modernization for accounting, enterprise systems and information technology.”

In some ways, it’s a traditional consolidation play. The industry in the United States has a large number of relatively small manufacturers such as ITEC that are facing competition from much larger foreign competitors. The small companies have focused on their manufacturing for a long time, but they haven’t always kept pace in modernizing their internal systems for inventory, human resources, sales and the like.

But instead of just rolling up those businesses into a single large corporation, Pacyna says, companies acquired for the T&D Group will maintain their individual product niches and their manufacturing processes.

“There’s an art and a science to this,” he says. “The expertise and the reputations these companies have need to be preserved.”

Pacyna knew nothing of Charlotte-based Falfurrias when the company approached him to run the T&D Group three months ago.

But he had 30 years of experience in the electrical manufacturing industry, mostly in transmission products with large companies such as Westinghouse and Siemens.

He wanted a chance to do something more entrepreneurial, and an executive search firm Falfurrias often uses put them together.

“What Falfurrias wanted to do is really at the core of what I see as an opportunity in the industry,” Pacyna says. “It really resonated with me.”

McMahan says the model for what Falfurrias is attempting with transmission manufacturing can be seen in the grid-services businesses it built up in its first investment fund several years ago.

In 2007, Falfurrias bought Synergetic Design Inc. as the base for UC Synergetic, a consolidated engineering and technical services company for transmission and distribution.Falfurrias rolled four companies into that holding company and last year sold it to Pike Electric Corp. in a cash deal valued at $70 million.

McMahan led that effort from inside Falfurrias, and it gave the company a sense of the opportunities in power transmission and distribution. The industry has an aging infrastructure that needs replacing, well-established technologies at a number of small businesses and the ability to innovate new products for utilities, he says.

“We recognized we needed a CEO who could help us find the companies for growth and help them grow organically as well,” McMahan says. “That what Dave brings us.”

He says Pacyna built Siemens’ transmission business in the U.S. to $2 billion annually from about $100 million 10 years ago.

The other piece of the deal that interested both Pacyna and McMahan is the growth of the power industry in North Carolina, particularly around Charlotte. Pacyna says a great work force is already available to help strengthen ITEC and other businesses he and Falfurrias will acquire.

And McMahan says the number of potential customers creates an opportunity for additional sales and organic growth for the T&D Group’s companies.

John Downey, Charlotte Business Journal.