Sky Island Capital has purchased majority control of Material Sciences Corp, a Canton, Michigan-based materials company. The acquisition marks the young private equity firm’s first deal after Jack Waterstreet teamed up with Pat Murley, Will Dobbs and others to form it in September 2018.
The Dallas firm, which is centered around control investments in manufacturing companies in the U.S., disclosed in a March filing that it had raised $52.7 million as part of a special purpose fund. The sum is being used towards the Material Sciences acquisition, though it is not the entire deal value.
For Sky Island’s first deal, having people that MSC’s management already knew was welcome as Waterstreet previously worked with MSC during his time at Insight Equity. The Southlake firm owned the company from 2012 to 2016 before selling it.
It was in Waterstreet’s role at Insight that he met Murley, who also serves as MSC’s chief executive. And when Waterstreet decided to leave Insight and start Sky Island, Murley was one of the first people he called to join the firm.
“Having someone like Pat that’s spent three decades working in manufacturing plants just makes it that much better,”Waterstreet told the Dallas Business Journal.
Sky Island plans to be more aggressive with add-on acquisitions as it looks to grow MSC. Waterstreet said that the firm is already under LOI with two different opportunities that could be a fit for MSC.
Sky Island is also evaluating several other platform investments that are completely separate from MSC, Waterstreet said.
For now, the firm has been focused on doing this one specific deal, but plans to raise a fund in the future.
Sky Island has found a niche in lower middle market manufacturing between companies reshoring manufacturing activity, the barriers to entry in the industry and his team’s expertise.
“There are thousands of private equity firms out there now, and it’s really tough to do well unless you have something to specialize in,” said Waterstreet.
“The critical part is we’re not just one type of manufacturing … We’re not limiting ourselves in one industry, so this is a very long-term, sustainable strategy,” he said. “We can ebb and flow between consumer and food and different products and auto — wherever the opportunities are presenting themselves over time.”