Who says private equity firms have a short-term ownership strategy?
Boston-based Berkshire Partners LLC has sold Advanced Drainage Systems Inc., the biggest maker of corrugated polyethylene pipe, to another private equity player 22 years after Berkshire first invested in ADS along with management in a recapitalization.
Berkshire is selling its ownership position to American Securities LLC of New York. Terms were not disclosed in the deal, announced Sept. 28.
ADS, based in Hilliard, Ohio, has 48 U.S. and international plants and more than 22 distribution centers, and employs more than 3,000 people, according to Berkshire Partners. ADS serves a variety of markets, including storm and sanitary sewer systems, storm water retention systems, septic systems, highway drainage and agricultural pipe.
ADS generated $700 million in estimated 2009 sales, from an estimated 150 pipe extrusion lines, according to Plastics News' ranking of pipe, profile and tubing extruders. That places it No. 3 in the overall ranking but by far No. 1 in corrugated PE pipe.
Berkshire worked with ADS management to purchase its biggest competitor, Hancor Inc., in 2005.
Ownership of more than two decades stands out in the private equity world of today, when five years, or even less, is the typical investment horizon.
Michael Ascione, a managing director of Berkshire Partners, said ADS has been a steady performer over the years. We've been fortunate to be in the position where we've produced very good returns for our customers. So we're able to have a longer-term view, he said in a telephone interview.
Berkshire's initial investment in Advanced Drainage in 1988 yielded nine times return on investment through 2002. That year Berkshire moved ADS shares to two new funds. Since 2002, Berkshire has earned an additional five times return on capital.
ADS CEO Joseph Chlapaty, a veteran of the pipe maker, said the partnership helped ADS achieve significant growth and shows Berkshire's history of being a long-term, patient private equity investor.
In a news release, Chlapaty said American Securities will help the company continue to grow.
Berkshire Partners was just a few years old back in 1988. Ascione said Berkshire was introduced to ADS by Prudential Capital, which had financed a recapitalization of the pipe maker earlier and was looking for an exit.
ADS was founded in 1966, and soon launched a 4-inch-diameter corrugated pipe.
The agricultural market was fully converted from clay drain tile to high density PE by the late 1970s.
ADS got into larger-diameter sizes in 1982, but the big breakthrough came in 1987, when ADS introduced the N-12 pipe, made by a new manufacturing technology that could extrude dual-wall pipe with a smooth interior wall and a corrugated outside wall. The smooth inside gave the pipe a very good flow capacity helping corrugated PE pipe expand into highway drainage, storm water and industrial uses.
This year, ADS has diversified into concrete pipe, catch basin and other pre-cast products by acquiring two companies.