RoMan acquires Grand Haven manufacturer in court-approved sale
February 27th, 2022
A new owner looks to rebuild a Grand Haven-based electric transformer manufacturer that went into receivership five months ago after defaulting on loan agreements with Comerica Inc.
Macro Magnetics LLC, formed in January by Wyoming-based RoMan Manufacturing Inc., paid $2 million to acquire the assets of Grand Power Systems Inc., a former portfolio company of Grand Rapids private equity firm Blackford Capital. The court-supervised sale came after Blackford Capital agreed with Comerica last September to move Grand Power Systems into receivership.
“We’re really excited about the opportunity and looking to restore what it’s capable of,” said Robert Roth, president and CEO of RoMan Manufacturing, which intends to rebrand Grand Power Systems as Macro Magnetics.
On Jan. 21, Ottawa County Circuit Court Judge Jon Van Allsburg approved the sale of Grand Power Systems’ assets, which was led by Chicago-based advisory firm and court-appointed receiver Finnea Group LLC. The sale closed Jan. 24. The acquisition includes machinery, equipment, tooling, intellectual property, inventory and accounts receivables, Roth said.
Comerica and Grand Power Systems’ principal customers also supported the sale to RoMan Manufacturing, according to court documents. Finalizing and closing the sale quickly was critical to allowing Grand Power Systems to continue operating, Finnea Group’s attorneys wrote in the court filing, which showed the company operated at a loss during the receivership.
Without an expeditious closing, the receiver would have been forced to “move to an orderly liquidation” of Grand Power Systems, resulting in a “significantly decreased return” to Comerica, supply chain disruptions for customers, and the loss of jobs, Finnea Group’s attorneys wrote. Selling Grand Power Systems to RoMan Manufacturing was “in the best interests” to all parties, according to court documents.
Grand Power Systems had been struggling “for a whole variety” of reasons, including an unsuccessful add-on acquisition, COVID-19, higher labor costs and inflation, all of which led the private equity firm to decide against putting more capital into the business, Blackford Capital founder and CEO Martin Stein told MiBiz.
Receivership was the “least expensive and most collaborative option of all of the options” to pursue for Grand Power Systems, Stein said.
“From 2014 until 2021, we put lots of love and attention and capital into the business, and the reality is that some companies don’t perform as you’d expect,” Stein said. “We had to make a decision as to whether or not we were going to continue to pour investor capital into Grand Power Systems, and we chose not to do that.”
The situation was the first time a company that Blackford Capital acquired ended up in receivership out of nearly 50 transactions over the last decade, Stein added.
‘We understood the business’
The family-owned RoMan Manufacturing, a Wyoming-based producer of industrial transformers, was an investor in Grand Power Systems and a trade creditor. RoMan Manufacturing “was very much aware of the struggles … although extremely disappointed in the way it turned out as far as the business having to go into receivership,” Roth said.
The opportunity to buy the assets came when Finnea Group approached RoMan Manufacturing, given the company’s familiarity with Grand Power Systems, said Roth, who chaired the board at Grand Power under Blackford Capital’s ownership.
“We understood the business,” he said.
The deal made strategic sense because RoMan Manufacturing specializes in water-cooled industrial transformers, while Grand Power Systems specializes in air-cooled transformers. RoMan Manufacturing previously “just never felt compelled to make all of the investment” needed to produce air-cooled transformers, Roth said.
Acquiring Grand Power Systems is “a great fit” that rounds out RoMan Manufacturing’s product lineup, he said.
“There was always a part of the market that we couldn’t supply,” Roth said. “But now this is a way where the combined companies allow us to have this broader product portfolio and all the times we’ve had to say ‘no’ to customers in the past … now we can say ‘yes,’” Roth said.
RoMan Manufacturing initially intends to focus on getting Grand Power Systems “back to basics,” Roth added.
Grand Power Systems targets $7 million in revenues for 2022, about half of what it once generated, Roth said. A business plan for the company seeks to restore revenues to 75 percent to 80 percent of past sales levels in the second year, and “by year three we ought to be able to be right back to where they were on a real solid footing, with a strong balance sheet,” he said.
“Obviously, any company that goes into receivership is not in good shape,” Roth said. “They have a great product portfolio (and) there’s a great group of people that have worked at this business that know how to do the work, but so much else of the company has been pretty damaged. It’s blocking and tackling. It’s really just getting focused on some core customers.”
Core clients that include Rockwell International, Otis Worldwide Corp. and Toshiba Corp. who were “extremely supportive” of the asset sale and restarting the business provide “a base of customers right out of the gate” for Grand Power Systems, he said. Wes MacAllister, a longtime manufacturing executive, now leads Grand Power’s day-to-day operations.
Grand Power’s sale ended a case that began Sept. 10, 2021, when Comerica filed claims in Ottawa County Circuit Court against four subsidiaries of Blackford Capital — GTI Power Acquisition LLC, Warner Power Acquisition LLC, Warner Properties LLC, and GTI Consolidation LLC — for breaching debt agreements.
Investors who joined with Blackford Capital affiliate BFC-GTI LLC to invest in the company as limited partners won’t receive any return on their investment, Stein said.
“Everything is fine with Comerica (and) everything will be fine with the business going forward. The group that really ended up losing out in this was Blackford and our limited partners,” he said.
A regulatory filing to the U.S. Securities and Exchange Commission indicates that 24 investors invested a combined $1 million in BFC-GTI in 2020. BFC-GTI initially raised $3.45 million in an equities offering six years earlier that involved 55 investors, according to a March 2014 SEC filing.
Blackford Capital acquired the former Grand Transformers Inc. in February 2014 from Greg and Jerry Retzlaff, the sons of K.C. Retzlaff, who started the business in 1948. At the time of the transaction, Grand Power Systems employed 70 people at its 55,000-square-foot, leased facility on Grand Haven’s east side.
The company today has 24 production and administrative employees, Roth said. A quarterly status report that Finnea Group filed with the court in December noted that key staff — including the CEO, chief financial officer, controller, human resources director, and operations personnel — had left the company.
Under Blackford Capital’s ownership, Grand Transformers in 2016 bought Warner, N.H.-based Warner Power, a designer and manufacturer of electrical transformers and power systems, from Bethesda, Md.-based private equity firm American Capital Strategies Ltd.
Warner Power had been “declining for 20 years and was on the verge of bankruptcy,” and had struggled under American Capital Strategies’ ownership, Stein said. Blackford Capital was unable to turn around Warner Power as anticipated and the company became a drain “on the entire organization,” Stein said.
“That management team didn’t work out, the product lines continued to decline” as industry technology evolved, “and the business never fully integrated,” he said. “The synergies that had been initially modeled didn’t end up transpiring and the organization had additional leverage as a result of that.”
Blackford Capital has since improved due diligence and internal processes, Stein said. The private equity firm has held companies that struggled, but none that went to receivership.
“I can’t say that this will never happen again, but I can say that we will ensure that we do everything possible so that at the outset we are buying the right businesses with the right management teams and providing them the right capital structures so that they can be successful,” he said.
The sale of Grand Power Systems’ assets also included equipment, machinery and inventory at the Warner Power facility in New Hampshire, but not the real estate, Roth said. Operations at Warner Power ceased prior to the Comerica court case and Grand Power Systems going into receivership, he said.
Production that was done in New Hampshire will move to RoMan Manufacturing’s facility in Wyoming.
“What New Hampshire could do is what RoMan Manufacturing is fully capable of doing,” Roth said.
– Robert Roth, RoMan President & CEO
Transformer Repair Services
Click below to request a Return Material Authorization (RMA) #.
Request A Quote
Requesting a quote is easy. Just provide the necessary information.