• Stephens Group acquired precision cleaning business after auction process
• Sponsor targets companies with USD 5m to USD 35m in EBITDA
• Anticipates more active M&A strategy for Astro Pak

When Stephens Group found itself competing in a crowded auction to acquire precision cleaning business Astro Pak, it realized it held an advantage over much of the playing field. The Little Rock, Arkansas-based sponsor was able to draw on a cultural affinity with its target thanks to common roots as family-owned businesses.

“The one piece that we pressed on very early was that Astro Pak was culture obsessed,” Jack Nadal, a managing director at the firm told Mergermarket in an interview. “The family that owned the business had impressed upon the company a lot of similar cultural characteristics as the Stephens Group.”

Astro Pak was founded in 1959 by Carl Verheyen and James St. Clair, serving aerospace companies in the early days of the Space Race. Winning contracts with a range of US government clients, it later expanded into sectors such as pharmaceuticals, semiconductors and industrials.

Stephens Group’s own origins go back nearly 90 years as an investment firm founded by W.R. Witt Stephens, which grew into investment bank Stephens Inc. The firm in its current form took shape in 2006 when Witt Stephens, Jr. and his sister Elizabeth S. Campbell sold their interest in the bank to focus on principal investing. Today, the wealth of these families serves as Stephens Group’s sole source of capital.

Kindred spirits

Stephens Group first learned Astro Pak would be coming to market early in 2024, Nadal said. Astro Pak was working on the sale process with Houlihan Lokey. The sponsor went to work to do its homework on the business, prior to engaging with Astro Pak’s management after the auction process had taken off late last summer.

“All of a sudden we said all the qualitative research, all the quantitative research and diligence is checking out, and now we are seeing an opportunity for true partnership with this management team with a culture that aligns with us,” said Nadal.

However, it also became apparent that Stephens Group would need to pull out as many stops as possible to overcome stiff competition given Astro Pak was attracting significant bid interest, said Nadal.

Another factor that Stephens Group leaned on was its knowledge of Astro Pak’s sector. This came from a prior investment – JV Industrial Companies, which the sponsor exited in 2012, operated specialty chemical cleaning operations – as well as its experience as a consumer of precision cleaning services through various other portfolio companies.

“We didn’t come into this cold,” said Nadal. “We did our research prior to receiving information, so that we had a running start.”

After months of effort, the two sides came to an agreement in early January and closed by the end of that month. Stephens Group did not disclose the terms of the sale, but according to its website, it targets companies with EBITDA between USD 5m and USD 35m for buyout investments. The typical equity check for buyouts is between USD 25m and USD 150m, but the amount may go higher when the target is a high-growth business, it said.

Growth areas

Having long invested in industrial services companies, Stephens Group has gained significant experience of a broad range of end markets. Astro Pak’s precision cleaning services – which currently are used by biopharma and food and beverage sector clients, among others – could be applicable across many of these segments, noted Nadal.

Data centers are one area where the company has potential for further growth, he added. Fueled by the growth of artificial intelligence (AI), the global market for data centers was estimated to be worth around USD 242.7bn last year and is projected to increase to USD 584.8bn by 2032, according to a February report from Fortune Business Insights.

Beyond tapping new and existing end markets, Stephens Group aims to double down on Astro Pak’s existing organic growth efforts, which notably include expansion to new locations. Last September, the company notably opened a new facility in Green Bay, Wisconsin. Stephens will continue expanding the company’s geographic footprint to be closer to current and prospective customers, said Nadal.

Add-on acquisitions are also part of the plan. In recent years, Astro Pak has judiciously pursued acquisitions of adjacent businesses, most recently purchasing Florida-based Chemko Technical Services in 2016.

“We’re probably going to be more aggressive than the company had been in the past on M&A, just because now we have the capital to do that,” said Nadal.