Independent Sponsor Series: A Conversation with Ryan Sullivan on North Park Group’s Unique Background and Long-Term Strategy (Part One)
To help businesses, investors, and deal professionals better understand the evolving independent sponsor landscape, Robert Connolly – a partner in LP’s Corporate Practice Group and leader of LP’s Independent Sponsor team – shares a series of conversations with independent sponsors, capital providers, and other professionals.
Below is his conversation with Ryan Sullivan, Managing Director of North Park Group, a private family office investment group of business operators focusing on acquiring family-owned, US-based manufacturing and distribution businesses to hold and grow. Ryan has extensive experience across diverse industries, a proven track record of increasing profitability and market share, and a keen ability to develop strong management teams. In this first of a two-part Q&A, Ryan explains North Park Group’s unique investment strategy and long-term approach. In part two, he offers insights on the current M&A outlook and advice to business owners and independent sponsors.
The responses below have been edited slightly for brevity and clarity.
Can you share the story behind North Park Group’s founding and what motivated you to focus on acquiring and operating U.S.-based manufacturing and distribution businesses?
I’ve been in manufacturing for my entire career – nuclear power plants, telecoms, industrial products, building products – but manufacturing and industrial distribution were the core of my professional career. I got the chance to run a portfolio company that had started as a public company and was majority-held by a family; that’s where I started buying companies. When I was at that portfolio company, I acquired six different businesses and sold a business. I did a public-to-private transaction that took a business private for the family. It was a great experience, and that’s where I learned how to do M&A. Until then, I had run manufacturing businesses.
Partnering with a buy-side broker I had worked with, we formed North Park Group in December 2021. When we formed it, we had the idea of creating something that was “ours” instead of working for somebody else. We wanted to create a platform where we could do multiple acquisitions and create a true partnership rather than an employee-employer structure.
The structure of North Park Group is unique. In the independent sponsor space, we see many “fundless sponsors” or independent people searching for a company to buy, and they might get funding from more of a standard PE group. Or we see family offices buying companies they don’t operate themselves. We sit somewhere in the middle with a collection of partners who are business operators. We’ve spent our careers running companies. We didn’t get here through the finance side or PE side, yet we’ve partnered to acquire multiple companies and, in doing so, created a partnership where we all participate in all the companies we’ve acquired.
We’re funded by about 40-50 outside investors, and we have a waitlist of investors. Philosophically, North Park Group came about because we like small manufacturing businesses. We like U.S.-based manufacturing – where we spent our careers – and believe that small companies are better together than apart. We can combine ten small companies to make a stronger ecosystem. Running a business is pretty lonely and isolating, so if you can do it with six partners who are also running businesses, it’s a little less lonely. You have someone to call.
We wanted to make sure we had control, and we liked the idea of long-term ownership. We wanted to create something generational. We didn’t want to buy a company and have to sell a good company in five years. We figured, if we built a good system, why not have it run for 100 years like many private companies. The partnership is structured so it could last for decades. It could transfer to a new Managing Director and keep going; there’s no exit required. That’s better for companies, employees, suppliers, customers, and the communities we operate in.
We formed a model where we have individual independent sponsors buying a business, but they become part of the North Park Group partnership. They instantly get a certain level of diversification and economic benefit from a larger portfolio. If you think about it in PE terms, they are the operator and a partner in the fund. They are sharing in the management fee for the portfolio, not just their company. They’re sharing in the carry for the portfolio, not just their company. From an operator’s perspective, it’s a much more attractive space than working for a PE company and running your platform company where you’re not participating in the fund and not getting diversification. If you’re a great operator, but you have a bad platform company, it will be a rough three to five years.
At North Park Group, we believe strongly in diversification. I didn’t want to put all my money into one company; I wanted to spread my money across 8-15 companies. I wanted to end up with partners, not employees, so I didn’t feel like I was the center of the universe trying to manage 15 business presidents. I wanted 15 people running together, not being managed.
A lot went into how North Park Group became what it is. The best way to describe us is a partnership of independent sponsors. When we buy a company, there’s a primary person on it. They take a personal guarantee, but we bring the equity from North Park Group. We bring the knowledge from North Park Group, and they get to join this ecosystem of other business operators running small US-based manufacturing and industrial distribution businesses.
Your firm operates under a long-term hold model, aiming to retain companies for over 10 years. What led to this decision, and how does it benefit both North Park Group and the companies you acquire?
Our model is very different from a typical PE model because we will hold businesses for decades. We’re not trying to do a roll-up. We’re not trying to buy ten plastic injection businesses, for instance, because we’re not playing multiple arbitrage. We like a little overlap because it keeps us stronger if we’re together, but we want to be diversified because all things go up and down. Look at the last five years: COVID was a rough time, depending on your segment or state. Even geographic diversification is essential. Now, the tariffs are impacting many different businesses in different ways. I was in telecoms during the telecom bust. I was in building products during the housing market crash. If you want to be in business for 30 years, you better plan for some ups and plan for some downs. We wanted to set the portfolio up that way.
We’re up to five platform companies now. We’ve made six acquisitions in three years, one of which we integrated with one of our other companies, so we have five operating entities. There’s a slight overlap between them; they’re all small US-based manufacturing businesses, and many do plastic, metal stamping, and assembly. Some of our businesses make parts for other companies in the portfolio. We like a 10% crossover between our businesses. We’ve reached a scale of 250 employees across the portfolio. It’s great – good people get to run a business they want to run. They get to operate it with control and without much red tape. But they’re doing it in an environment where there’s always someone inside the portfolio who’s dealt with a specific problem before. It’s an unusual structure compared to solo independent sponsors or the larger independent sponsor shops.
It’s a very interesting and compelling structure that that you have. Can you talk about it from the investor’s perspective?
With North Park Group, I wanted to put about 50% of my net worth to work. But I didn’t want to hope that I got 4X my money in seven years. We wanted a structure that was a high distribution structure. Investors who put money in get money back out. It aligns with buy and build: you buy a company and want the free cash flow from that company so you can reinvest it and continue to grow it.
We structure our deals like a typical PE deal because that’s what our investors understand. We charge a management fee as a percentage of EBITDA. We charge a carry, which is incentive equity for us as operators and managers. Investors get an 8% preferred return. The waterfall is their preferred return, then get their equity back, and then we’re into a carry split like a private equity deal.
The difference is we use SBA loans, which allow distributions in excess of tax during the hold period. In a typical PE deal, if you have commercial debt, all your free cash flow will be servicing the debt, not the investors. However, the SBA loan allows distributions during the hold period with a 10-year amortization or a 10-year term on the loans. We can decrease the debt service and increase the free cash flow of the businesses, which aligns well with my personal needs and with investors’ preferences because many of our investors are in PE deals and public markets. We sit in the middle, and they get the upside of a private company investment. They lose some of the liquidity, but they get cash flow and distributions whenever we have free cash flow in the business, sometimes three times a year or sometimes once. It looks like a high cash-flowing real estate investment with more upside, which was important to my partners and me and aligns well with investors.
Since we’re talking about pulling free cash out of a business, you constantly debate whether to reinvest in the business for growth or return it to shareholders. That’s a healthy debate. As a business operator, you should always think about the best use of your money, so it keeps us honest. We don’t want to suck all the cash out of our companies; we’re going to own them for 30-40 years. We need to reinvest. We need to freshen them up. We need to grow them. But at the same time, what good is owning a company if, after 20 years, you don’t have any money back?
North Park Group emphasizes working closely with businesses to develop and execute strategic growth plans. Can you elaborate on your investment philosophy and the specific industries or deal types you target?
When looking for a deal, our approach is about getting the stars to align. We have a wide net. We look at businesses anywhere in the 48 states with between $500,000 – $3,000,000 of EBITDA, because that fits well with our investors. This approach fits with the types of companies we like to run. It also fits well with SBA loans, and there’s less competition. Everyone is looking for a $4-5 million EBITDA business growing every year for five years in that space. So, we can buy better in the space we are searching.
We typically buy from a family or private operator who has run the business for 30-40 years. We’re typically buying from somebody who wants to retire, and it’s a traditional family business. Under the 80/20 rule, 80% of the time, they own the real estate, and we like owning real estate. So, we become a good buyer. We’re business operators who understand how to take care of “the baby” they’ve raised for 40 years. They want full liquidity, and we want to buy the real estate. Many private equity firms don’t want to buy the real estate, but we can give sellers full liquidity. There aren’t many 75-year-olds who want to be a landlord for 20 years. We also view buying the real estate as risk reduction because we don’t have rent escalation every single year and it’s a good asset for debt.
We’re not targeting a specific commercial sector inside of manufacturing. We’re not chasing a trend. We’re looking for a good company that’s consistently made money. We don’t do turnarounds, distressed assets, or startups. We’re looking for a company that’s been around for 20-40 years. We’re looking for a type of manufacturing we know and understand, which is wide because of our partners. We want to be diversified, so the less it looks like something we currently own, the more attractive it is.
Finally, we’re looking for a good seller. We’re looking for somebody who jives with us. The relationship and connections are essential. If we have an operator who’s interested in the business, likes the geographic area the company is in, and knows the segment, and we have a good seller with $500,000 – $3,000,000 EBITDA, and we feel like we can form a partnership with the seller, then our acquisition approach is about getting the stars to align. Because if all the stars align, the transaction risk is significantly reduced. They’re selling to us because we’re good stewards of the business for the next 30-40 years. They’re not looking to maximize their economic exit. They’re looking to take care of the legacy of what they built. And we’re very much about owning the business for the next 40 years, so we care about the legacy too.
When we find that combination, we have an excellent acquisition. When one of those stars is out of alignment, we don’t end up moving forward on an opportunity. Selling a business that you’ve run for 30-40 years is heartbreaking, no matter how you want to look at it. It’s emotionally exhausting. Buying a business is scary and stressful, so you need to like the person on the other side of the table if you want to get through it smoothly. Like it or not, you’re together for about two years. From the time you meet, get to LOI, to closing until they transition out of the business, you spend a lot of time with each other. We look for partnership and connection first and foremost.
That’s worked well at Arcadia, Electron, and Phoenix Electric. We meet the sellers, and something clicks. They understand that we know how to run their business, and we’ve done it before. That makes them feel comfortable. We know they’re looking to transition their business in the best way for them, their employees, and their community. When all those stars align, it’s a very easy transaction.
Many independent sponsors look for a particular type of business in a particular sector in a particular industry, but we’re much more agnostic. We’re looking for the building blocks of a good acquisition more than a specific industry sector.
Congratulations on the recent acquisition of Arcadia GlassHouse, marking your fifth platform investment in the manufacturing and distribution sectors. What key factors contributed to this success, and how did you identify Arcadia GlassHouse as a compelling opportunity?
Both Arcadia and Neverleak Company are deals I saw and passed on at first for various reasons. Then one of our other partners operating in our space said, “Wait a minute, I like this one.” With Arcadia, Brian Paul, whom I’ve worked with for six years, was looking for a business to buy in a certain geographic area. He wanted to move back near family in Chagrin Falls, Ohio and run a manufacturing business. He was looking at a 45-minute or hour radius around Chagrin Falls for about a year and a half. I saw the business and passed on it. About a month later, he says, “Hey, I like this business; it’s a little outside my radius, but I like it.” The business fit very well with his background, so we pursued it. A similar thing happened with Neverleak in Mississippi. I saw the initial book on it and passed. Then one of my partners, Scott Martin, said, “Hey, I like that business.” So, we got back into it.
Brian’s the lead on Arcadia. He likes the space, which fits his professional background very well. He met the seller and felt like they had an excellent connection. Their relationship formed very early, and then we worked through the process. A father and son both owned 50% of the business. The father was ready to retire, but the son wasn’t. The son wanted to stay in the business, and they were looking for a buyer to ensure the son could continue participating in the business. Again, it comes back to taking care of the legacy and the company, not just the financial exit of a business. Once we realized that, building that relationship and trust took time to convince each other we’d be good partners for 30 years. Brian was very successful at doing that with the family, and it led to a successful transaction.
In what ways does your firm provide value to portfolio companies beyond capital, particularly given your operational focus?
It comes down to the belief that five small companies operating together are stronger than operating independently. We don’t have a big North Park Group staff; I’m the only person who’s not operating a business day in and day out. We have a network of 250 people under the North Park Group umbrella. We have experts, labor, and additional resources that a typical 30- or 50-person small business would not usually have. For instance, we have somebody who’s an expert in injection molding because we do injection molding in three of our companies.
We’ve done a lot of interesting things. When we bought Neverleak in Mississippi, they had a significant backlog of late orders. We were figuring out how to catch up and service the customer correctly. We were looking at temporary workers and trying to create a second shift. Then we realized we had some idle labor in a St. Charles business, so why not see if that labor wants to go down to Mississippi for two weeks and run machines? Instead of bringing in temp workers, we transferred existing employees at another company to Mississippi for two weeks. They worked with 20% overtime, were paid to make the trip down, were paid a per diem to be there, and we put them up in a vacation rental for two weeks. They ran machines for several hours, and we caught up on our backlog, which was great for customers. Employees loved it too – they got to visit another business. We had professional workers who we knew were safe and knew how to do the manufacturing operations. So, it was a win-win all around. Our workers were paid more; we caught up on our backlog and serviced customers safely. Everybody had some fun and learned a bunch.
That’s the power of operating inside a portfolio instead of as a standalone company. We can always call somebody inside our portfolio to help somebody else out. There’s always somebody who’s dealt with it in the past. There’s always somebody who has a different life experience who can help plug a hole. We’ve used that approach from hourly labor up to strategic thinking. As outside partners, we leverage the whole portfolio to help the individual small businesses be more successful.
One of your core tenets is to retain employees post-transaction, preferring not to make management or employee changes. How do you structure partnerships with operating partners and management teams to ensure alignment and success?
When we do an acquisition, we believe in retaining all the employees. We don’t buy a book of business and move a business. We don’t want to do consolidations that are eliminating jobs. We’re about sustaining US-based manufacturing and sustaining companies’ legacy and reputation.
We go into an acquisition expecting to keep everybody. We offer employees a retention bonus over the first two years, which says to them, “We know the seller’s retiring and getting a check, but we want this to be good for you too, so if you put up with the drama, changes, and a new boss for two years, we’ll give you a non-performance-based bonus that’s a connected to the acquisition. Stick with us. Give us a chance to show you that we’ll be good stewards of the business, and if you put up with us, we’ll put up with you and give you a bonus.”
Employees like that because they feel like we’re more committed. It’s part of why we buy the buildings; the employees feel more confident that we’ll stay there and continue to operate that business. Some of these people have worked in these businesses for 30-40 years, and when we buy the building, they realize that we’re not buying them to shut them down and move them; we’re buying the business to do good things here. Typically, right after closing, we try to make some facility improvements. We paint walls, redo a break room, or buy new furniture. We do something to show them that we’re committed to the environment they operate in.
From an employee perspective, this is great. We’re giving them a retention bonus. We’ve bought the building, so they know we plan to stay there. When they come in on Monday after the acquisition and the entryway hallways have been painted – we literally paint and clean over the weekend – we want to say to them, “This is a good thing. This isn’t to scare you. This is to show you how committed we are to you working in a good environment.” That’s the approach we take with employees from day one.
With management – or ownership – it’s case by case. We’ve done deals where one person owns 100% of the business. They want to retire, and we’re buying them out, so they get full liquidity. We’ve also done deals where a parent owns the business, but several family members are involved in it, so we’ve done incentive equity for the family members who were in the business and didn’t have real equity before. We try to structure deals so that the key building blocks of that company stay in place post-acquisition and that management is incentivized to push the company forward for the next 20 years. We pull a lot of different levers to try to do that.
What differentiates North Park Group from other financial sponsors in the lower middle market?
On the operating partner side, the best way to describe North Park Group is, an independent sponsor comes in with a deal and we help them buy it. We bring our investors as the equity, and because we’ve done several acquisitions, we understand the banking partners and the legal side. We can help many people who might be doing their first acquisition. We can provide guidance on how to make a good transaction together.
The operator/sponsor benefits from a less risky transaction. Instead of taking out a lot of debt, we can do 50% debt and 50% equity because we’re bringing investor money, which reduces the operator’s or independent sponsor’s risk. They are diversifying because they’re picking up some incentive equity in the whole portfolio. They have a big chunk of incentive equity in their business and shared participation in the rest of the portfolio.
The same applies to the management fee. They instantly become a partner in a larger portfolio.
As I tell independent sponsors, you can make more money buying a company on your own. You’ll take all the risk and get all the upside. The downside is you will have a lot of sleepless nights because bad things happen. But in our model, you might get less upside, but you’ll have less risk and more participation in an ecosystem. It’s more emotionally satisfying and still very good financially.
The big thing that differentiates North Park Group from other financial sponsors in the lower middle market is we’re not really a financial sponsor. We are business operators with outside investors, but we have control. I still go into businesses and run machines for fun. It’s a good way to figure out what’s going on inside a company. I know very few financial sponsors who go into a business and run machines for a few hours, but that’s just who we are at our core. We’re business operators, so it’s an ecosystem of business operators talking with business operators, making us unique.
For more information on Ryan Sullivan, visit his bio. For more information on North Park Group, visit their website.
To read other articles in this series, please see here: Insights | LP (lplegal.com)
Interested in participating in a future interview series? Please contact Robert Connolly.