Deal Profile: Pure Power

purepowertechnologies-final.gifThe commercial vehicle segment, comprising light-, medium-, and heavy-duty trucks, includes more than 20 million vehicles in operation across the United States. To help keep these vehicles rolling down the country’s roads, a robust industry has sprung up, offering a bevy of aftermarket products. 

That’s the segment in which Pure Power Technologies (Pure Power) plays. The Columbia, South Carolina-based company is a premier independent supplier of new and remanufactured fuel injectors and other fuel system components for diesel engines. Formerly an original equipment manufacturer (OEM) that was established as a joint venture between Navistar and Siemens, Pure Power has grown into one of the leading providers of highly engineered diesel fuel system replacement components for the aftermarket.

Recently, Harris Williams advised Pure Power on its sale to Stanadyne LLC, a portfolio company of Kohlberg & Company LLC and builder of innovative fuel systems for a wide range of vehicles. Managing Directors Frank Mountcastle and Joe Conner, Director Jershon Jones and Vice President James O’Malley, all in the Harris Williams Transportation & Logistics Group, led the transaction and highlight what made Pure Power a promising acquisition target.

A Steady, Disruption-Resistant Market

Commercial trucks have longer lives than consumers’ cars—upwards of 30 years—but those lives are far from easy. These trucks tend to be driven hard and, given the nature of the work and applications involved, are susceptible to higher failure rates for complex, critical, and typically expensive parts and components.

At the same time, these vehicles are in high demand, and are vital to someone’s job or business, so they can’t be out of commission for long. This means that, for truck operators, there’s no question of whether to maintain the vehicle or fix it when it breaks. For providers of aftermarket replacement parts, this means steady demand that’s highly resistant to recessionary cycles. In fact, aftermarket players often see even more demand during down cycles, when truck owners are keen to keep their existing vehicles running, rather than buy new ones.

Pure Power Keeps Trucks Rolling

Steady demand and a stable market are certainly good news for Pure Power, which has engineered and manufactured more than 30 million precision diesel fuel injectors since 1999. The company has built an impressive track record, racking up robust sales and market share for its core products, giving the company a steady revenue stream and cash flow.

Take the company’s VEE 6.0L fuel injector, one of its core product lines. “There are almost 1 million vehicles on the road with this injector, which typically fails every three to five years,” says Jones. “When you consider that these trucks will be operational for potentially 30 years, the math shows a pretty predictable revenue stream. Pure Power can build on this steady, consistent base by introducing new products for new vehicle types.”

And that’s exactly what the company has done. Over the years, Pure Power has substantially broadened its product set from those on which it was founded. Doing so opened up many new channels and customers, which Pure Power has successfully cultivated.

purepower_header.png

Even so, there’s still plenty of growth potential for Pure Power. For instance, the company could expand its product lines to cover more vehicle platforms. Doing so would enable Pure Power to get a broader range of products on the shelves of key retailers and distributors, as well as to serve a bigger base of truck owners.

“Pure Power’s current products target a limited number of vehicle platforms,” notes O’Malley. “There are many other platforms out there for the company to attack—such as different model years of vehicles or vehicles made by other OEMs. Pure Power has a great track record of innovation and taking products from R&D to rollout, so it wouldn’t be difficult for the company to replicate for another platform what they’re offering now. That would be pretty impactful to the growth of the business.”

All of this growth and market share wouldn’t be possible without two critical capabilities that Pure Power has in spades. The first is top-notch engineering talent. A vestige of its Navistar-Siemens OEM heritage, Pure Power boasts more than 350 world-class engineers and technical specialists, complemented by a complete portfolio of advanced design, testing, and engineering capabilities.

Translating engineering’s ideas and innovations into actual products is the responsibility of the second capability, Pure Power’s market-leading manufacturing facility. This facility, which also traces its roots to the joint venture that ultimately spawned Pure Power, enables Pure Power to achieve an OEM-level of sophistication, quality, and precision that’s extremely rare in the aftermarket segment, and a clear competitive differentiator.

“Given the types of products Pure Power makes, precision is crucial to the products’ performance,” says Mountcastle. “For example, you need highly sophisticated machines to achieve the right tolerance to provide the combustion and power these commercial trucks need to do their jobs. What Pure Power has is really different from what other providers have, and Pure Power’s buyers—who have been in a lot of other facilities—were clearly impressed by what they saw.”

Conclusion

Harris Williams remains bullish on the automotive aftermarket segment broadly and the commercial vehicle sub-segment specifically. It’s a very stable industry with many positive dynamics, making it an attractive segment in which to invest.

Strategic buyers or private equity investors considering this segment should look for companies with qualities similar to Pure Power: those that have a strong brand and a reputation for producing high-quality, durable products. This is especially true in Pure Power’s diesel engine market, which is dominated by very savvy buyers who know what they want and are adept at spotting quality issues. Companies that produce a high-quality product and serve only a small segment of the market are especially attractive, as a robust roadmap for expanding their presence can generate significant future growth without the need for a lot of capital—something Pure Power certainly is familiar with.

“Pure Power’s management team has built a market leader with world-class facilities, people, processes and products,” says Conner. “The company has established a purpose-built platform serving the commercial vehicle aftermarket, and is poised for a new phase of growth in partnership with Stanadyne.”

Published July 2019