Case Study: To Take Private Equity or Not

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Still, Delman knew that selling a big stake to a private equity firm, even one that seemed to share his philosophy, was risky. At Great Lakes, he saw first-hand how an ownership shift can change a business. Though Delman would still be Sunrise's largest individual shareholder, FdG would hold three of the five seats on Sunrise's board of directors, to which Delman would be required to give quarterly reports--a far cry from his low-pressure relationship with his uncle and VanDeVelde.

Delman's conversations with Dossey helped set him at ease, but he still worried that bringing in a new partner--a private equity firm from New York City, no less--could damage Sunrise's relationships with its customers. Would they stop thinking of Sunrise as a reliable family business? Delman wasn't sure he wanted to find out.

The Decision

At 5 o'clock in the afternoon on March 29, 2005, Delman gathered his sales staff in Sunrise's conference room and broke the news: A few hours earlier, he had sold a 70 percent stake in Sunrise to FdG for $50 million in debt and equity. Delman laid out his case, explaining that FdG's capital infusion and strategic expertise would only strengthen Sunrise, making their futures more secure.

The next morning, Delman held a similar meeting with Sunrise's office workers and, that afternoon, he met with the company's shop workers on the factory floor. To convey a united front, his uncle attended the meetings, along with Mike Roncato, Sunrise's vice president of sales, and Cliff Langdon, vice president of operations. Though some employees were skeptical, most took the news in stride, and nobody quit.

Delman spent the next four days calling most of his top 50 customers to give them the news, reassuring them that Sunrise's customer service would remain the same. Many clients were concerned, but Delman assured them that, as the company's largest individual stakeholder, he would continue to run the show. He also reminded them that the private equity infusion would allow Sunrise to roll out a wider selection of products at a faster pace.

Delman didn't waste any time. With the help of a team of industrial engineers, he reconfigured Sunrise's plant to boost efficiency. The factory now has separate production lines for different types of windows, slashing the time it takes to make each one from six and a half days to five days. In the past 18 months, Sunrise has rolled out a new line of beveled leaded glass and added three new colors. The company has expanded into three new markets, and now ships windows to 1,000 clients as far away as New England and Texas.

There is one downside to branching out: Delman now spends a few extra days each month on the road, courting new customers. But his efforts are paying off. Since 2004, Sunrise's sales have jumped 27 percent, to $38 million, and the company has remained profitable despite the extensive capital expenditures. Best of all, Delman still feels as though he's in charge. After the deal with FdG closed, for example, he called Dossey to talk about allocating $20,000. Dossey's response? "Gary, thanks for asking me things like this, but just make the decision and do it."

The Experts Weigh In

It's a bad move

I would not have done it. The private equity investors are telling Delman things that they know he wants to hear regarding fast growth and expansion. It takes a lot of work and good connections to accomplish those goals. For example, Delman will have to find enough qualified employees who know the window business as well as he does to support such fast expansion. Dealing with cultural differences in various parts of the country can also be challenging.

William Shull
Counselor
SCORE
Toledo

It won't be easy

When you run a family-owned business, you get to pick and choose what you want to do. When you have investors looking for rapid growth, on the other hand, you have to make some hard decisions to meet their expectations. Delman's success is going to depend on the scalability of Sunrise's office services, manufacturing, and sales infrastructure. He has to leverage those things to keep expanding.

Brian Opielski
Owner
Apex Management Group
Malvern, Pennsylvania

A great opportunity

The window industry is composed of many players, and the larger players have been more successful. If executed properly, this deal could end up being an excellent opportunity for Sunrise, giving the company additional sources of capital and the opportunity to merge with another company over time. The deal will probably help Sunrise reduce its overall cost of capital. And it will allow Delman to diversify the personal assets that he has invested in the business.

Paul Aran
Vice president
Moody's Investors Service
New York City

What do you think?
Was a private equity deal the right move for Sunrise Windows? Let us know at casestudy@inc.com.

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