Focusing on performance: management buyout of Hayes Brake results in formation of HB Performance Systems; no brakes on growth

Diesel Progress North American Edition, Sept, 2005 by Mike Brezonick

What's in a name often has very little to do with what a company is about. Yet in a very real sense, for HB Performance Systems Inc., the mine sums up the mission for the Mequon, Wis.-headquartered manufacturer.

Just over three months old at this writing, HB Performance Systems was born as the result of a management buyout of Hayes Brake LLC, a supplier of brake systems and components to a variety of industrial and consumer markets for nearly six decades. Over the years, Hayes established a reputation as a high value supplier for a variety of well-known companies, including Harley-Davidson, Caterpillar, John Deere and JCB.

In the last five years, the company fared especially well, essentially doubling its overall revenue to just under $100 million in 2004. But when earlier this year the company's nine-member management team worked with private equity firm Nautic Partners to buy the company for an undisclosed sum from Ohio-based Brenlin Group, they wasted little time in setting new, even more ambitious and aggressive goals for the company.

"We are a different company," said Rand McNally, president and CEO, who led the management team in the buyout. "We have advanced from being just a component manufacturer--supplying this part and that part and letting the customer put it together. We're looking to deliver a system, such that from a customer perspective, you mount it, turn the switch and go.

"And our business is no longer just making brakes. If you look at each one of our businesses, we have a number of non-brake products. We're looking to focus more on systems, and not just systems but performance systems. We want to take full responsibility--and have fill accountability--for the performance of the product, because that's the way we're going to be able to give them zero defects and 100% percent performance."

As part of the buyout, the business was restructured into operating divisions, covering cycling (Hayes Bicycle Group), motorcycles (HB Motorcycle Group), snowmobiles and all-terrain vehicles (HB PowerSports Group) and turf care, construction/ag equipment and utility vehicles (HB Specialty Products Group). Each of the divisions is operated essentially as stand-alone operations.

"Our motorcycle business used to be the dominant force--let's say 75% of our business," said McNally. "As we've grown the other pieces of our business, it's down to about 50%.

"Out intent is to have each of four legs of our stool to be 25% of our business in a three- to five-year timeframe and we're looking for each of those businesses to be a $50 to $100 million business.

"In Motorcycle and PowerSports, most of that growth will probably be organic. In Specialty Products, the off-road equipment stuff and the bicycle products, we'll more likely be tacking businesses on. We see much greater strategic opportunities in those areas."

Indeed, growth through acquisition is a major part of HB Performance Systems' strategy for the future. "When we divided the company into pieces, we recognized we have a Who's Who of customers," McNally said. "As we looked at their expectations, we felt we had part of the portfolio that could address their opportunities and requirements, but needed some additional pieces.

"How do you get the additional pieces? You can home grow them and we have done a good job in that with immediate opportunities. But sometimes it's a little better from a cost profile to acquire technology from somebody else.

"I like to go and knock on doors and get to know my competitors and people that might eventually be competitors and through that relationship we can sometimes find some opportunities."

One of those opportunities has already manifested itself quickly, as just a month after its own management buyout, HB Performance Systems bought Sun Metal Products Inc., Warsaw, Ind., a manufacturer of wheels, wheel sets, hubs and other components for bicycles and wheelchairs.

"Our equity partners in the business brought the financial resources that will help us grow very quickly, as this proves," said McNally. "Sometimes you'll find businesses that have so much leverage that they cannot move. That's why we made a very conscious decision to have an equity partner in our business that was in it for the long term and that would put significant investment into our business.

"It meant that those of us in management might not have as much as we would have liked to if we were more highly leveraged. We could have a much stronger position in the company. But we're in the long haul to build the business."

Looking at the Specialty Products business, HB Performance Systems offers both standard and highly customized components and systems. Standard products for construction, turf and industrial equipment include light-, medium- and heavy-duty mechanical calipers with clamp forces ranging from 300 to 10,000 lb.; light-, medium and heavy-duty hydraulic calipers with clamp forces ranging to 10,000 lb.; mechanical brakes for hydraulic wheel motors; spring applied hydraulic or air released spring chambers; and a range of accessories, including master and slave cylinders, etc.