🔑 My friend bought 27,000 apartment units. I asked him how he did it
Welcome to The Business Buying Academy with Sieva Kozinsky. Here's what we have in store for you today:
- How to rollup a boring industry
- Avoid this business buying mistake
- Buying $5 billion in real estate (here's how he did it)
🔑 Textbook M&A deal in a boring industry
I usually write about historical M&A deals from decades past.
This week, let's switch it up and talk about a recent deal in a boring industry: Industrial reliability services.
You probably haven't heard of this business, so let's start with a definition (please don't fall asleep here):
Industrial reliability services refer to a specialized suite of engineering, maintenance, and consulting solutions designed to maximize the uptime, performance, and longevity of critical industrial equipment.
Private equity firm CapStreet orchestrated one of the most effective buy-and-build stories of the past decade by rolling up the industrial reliability space.
Let's dive into the details.
It started in 2013 when CapStreet, a Houston-based PE firm, bought T.F. Hudgins, a legacy manufacturer of engineered components.
The deal was the start of a rollup which ultimately turned a sub-$100 million business into a company with over $500 million in revenue.
In 2023, CapStreet sold the new business to Shell's lubricants arm in a clean, strategic sale.
Here are some of the tuck-in acquisitions CapStreet made through platform business T.F. Hudgins:
- Jamison Products, a fluid-handling specialist offering custom-engineered valves (deal made in 2014) This add-on broadened their product offering.
- Texas Rotating Equipment: Expertise in overhauling steam turbines, pumps, and gearboxes, enhancing repair capabilities for rotating assets.
- Pro-Line Inspections: Infrared and ultrasound tech for early fault detection.
- ...and a few other similar businesses involved in lubrication systems, electrical services, consulting, and custom fabrication.
- In October 2016 CapStreet engineered a merger between T.F. Hudgins Holdings and Allied Reliability Group Holdings. Allied brought in an expertise in data analysis and maintenance training, while T.F. Hudgins contributed manufacturing muscle.
If you don't understand what each of these companies do, don't worry.
The main point here is that CapStreet's goal was to create a one-stop-shop for reliability in manufacturing.
Little by little, they identified middle-market businesses specializing in each of the relevant areas, acquired them, and tucked them into the platform company.
The Result
Revenue reportedly crossed $500M by exit, up from sub-$100M at the 2013 T.F. Hudgins acquisition.
25% CAGR was reported for key business segments.
Here are the main reasons the deal did well:
- Market Tailwinds: The shale boom and energy transition grew demand for predictive tools that extend asset life and cut emissions.
- Tech Integration: Combining Allied's data analytics with T.F. Hudgins' fabrication created proprietary software for real-time asset monitoring.
- Sustainability Focus: Services emphasized eco-compliant lubes and efficiency gains, aligning with ESG mandates of the 2010s.
The Exit
In December 2022, the company announced sale of TFH Reliability Group to Pennzoil-Quaker State Company (a Shell USA subsidiary), marking a textbook strategic exit.
The exact terms were confidential, but analysis I found suggest a 4-5x MOIC for CapStreet and 15% to 20% EBITDA margins at the time of the sale.
Lessons
This rollup checks so many of the boxes of PE dealmaking, such as:
- Identify a strong platform business that can serve as the centerpiece to a rollup.
- Find businesses that complement the weaknesses of your platform and tuck them into the business.
- Once your platform is large enough, find another large player in the industry to merge with.
- Integrate a technology business that can help the different parts of the business run more efficiently.
- Exit to a large, strategic buyer.
🔑 Don't make this mistake when buying a business
Buying a business without getting a quality of earnings report is like buying a house without a home inspection. You’re taking a big bet without knowing what you’re buying, and it could be a disaster.
Even if the seller gives you all their financial statements, they often have very bad bookkeeping.
So, what should be in your QOE and financial due diligence package? Here's what today's sponsor Appletree says about their QOE reports:
✅ Proof of Cash
Are revenues real? We rebuild the last 1-2 years using bank statements to verify that reported earnings arrived in the bank account.
✅ Addbacks That Actually Make Sense
We normalize SDE or EBITDA with logic, not wishful thinking. The hand-waving. No “adjusting away” real costs just to make numbers look better.
✅ Working Capital Analysis
Avoid the “Post-Close Surprise” where you’re suddenly short $150k in working capital. We calculate what the business needs to operate smoothly.
✅ Forward Looking Projections
We model post close cash flow and debt service coverage under flat, growth, and decline scenarios – so you know how risky the deal really is.
If you’re sending out LOI’s or nearing a deal, don’t go in blind. Talk to Appletree for a pragmatic, thorough Quality of Earnings report – built by people who’ve bought businesses themselves.
🔑 Here's how you can buy 27,000 apartment units
My friend Jeffrey built a real estate company that owns and manage $5 billion in assets with a portfolio of 190 properties.
The lessons were hard-won over a few decades in the business.
He nearly lost everything a couple of times, but learned to manage risk while pursuing aggressive growth.
He told me how he got started in the business, how he found his initial niche, and tons of secret tips on how to buy, analyze, and manage real estate. Listen to this one if you want to build your own real estate portfolio.
Have a great day,
Sieva
P.S. - Are you hiring? Get started with top global talent from Somewhere (I'm a customer and investor)
Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.
