Under the Hood: A Private Equity Success Story

Eric Armenat had spent decades building a successful career in aerospace manufacturing when he got a job offer he couldn’t refuse: Would he be interested in running a struggling home healthcare business?

Buffalo-based private equity company Summer Street Capital Partners had recently bought a controlling interest in Willcare, a family-run home healthcare business that had more than 2,000 employees working across three states. The company’s business fundamentals were promising, but its operations were a mess: Costs were too high, the patient experience was uneven, and health outcomes varied from office to office.

Armenat was intrigued by the challenge, and took the job, embarking on a corporate turnaround that standardized best practices across offices, lowered costs and improved the company’s bottom line. Three years after he took the job, Summer Street was able to sell their stake in Willcare at a profit.

Corporate turnarounds are what private equity firms do best, says Mike McQueeny, Managing Partner at Summer Street Capital.

“It’s more than capital, we have all kinds of resources and experience that we can bring to a company based on all the different things we’ve done over the years.” he says. “...Typically when we get involved, we end up improving the information systems, financial and otherwise. We introduce concepts like lean manufacturing on a regular basis for businesses to get safer and more efficient.”

Where appropriate, private equity firms have the war chest necessary to mount acquisitions of smaller competitors or partners on the company’s behalf.

At Willcare, the best thing Summer Street did was hire Armenat, a lean development expert with a deep interest in building efficient work systems. Up until that point, he had driven department-level improvements at companies that were mostly running well.

“I was personally intrigued by [the private equity] model,” Armenat says. “My success was my ability to make a significant change in the performance of a company, and I thought it would be really interesting to do that on purpose, professionally, with private equity.”

Immediately after joining Willcare, Armenat went on a three-state road trip, riding in the car with nurses out to patient’s homes, to understand the business from the ground and listen to feedback from employees. His team gathered data and studied it, looking for patterns of success and failure.

“I began to understand that there was significant variation between nurses and offices in how you addressed a patient with the same diagnosis,” Armenat says. “Secondly, there was a pattern of behavior from office to office, in the number of visits that people would make. Drive time, how many times I drive to someone’s house, what exactly do I do when I get there, and how much time do I spend with the patient?

“I collected all sorts of data, and created charts and graphs, because I needed to convinced 2,000 care providers that what they were doing was fundamentally wrong.”

Armenat’s says his strength is his ability to ferret out the root cause of a corporate problem and fix it.

After the Willcare turnaround, Armenat took on two additional assignments at Summer Street, studying a large-scale incineration with a dysfunctional management team, and his current role, as President and CEO of Buffalo-based Multisorb, one of the leading manufacturers of oxygen and moisture absorption products.

There, he found a long-running company that was well regarded by customers, despite its high costs and 8-week lead time on orders. From the outside, the company seemed stable, but behind the scenes, Multisorb was struggling financially, with a management team that insisted on building manufacturing plants in Alabama and the U.K., with plans to build a new facility in India.

That didn’t make sense to Armenat, who halted the company’s expansion plans and closed its ancillary plants, focusing instead on improving its manufacturing base in Buffalo.

Within a year, Multisorb trimmed its global workforce from 678 to 470 people, while simultaneously growing its revenue by $14 million, Armenat says.

He’s inspired by Amazon’s warehouse operations, which he called a “leaned out, wire-tight, cost-effective process.”

Multisorb’s process was considerably slower--they’d get an order, build the product fairly quickly, but it would sit in a warehouse for weeks before being shipped out.

“What’s the gap? What’s preventing you from flowing information, or flowing a production process, so it doesn’t stop from the time it starts to the time it ends?” Armenat says. The company studied “how long it took at each step and why it took so long. So what we’re working on now is a three-day order cycle. If you call today, I’ll get it on my machines later today, and have it on that dock and ready to go on the third day. That’s the vision, and now you work on everything preventing you from achieving that.”

Summer Street Capital admits that its hands-on approach to corporate turnarounds is somewhat unique among its peers, some of whom have earned a reputation for improving a company’s bottom line by slashing budgets and cutting headcount.

“We don’t want to do business with everybody,” McQueeny says. “We’ve learned this over time. There are people who want help and people who don’t want help. People who are open to learning and improving their businesses? Then that’s a great fit. But management teams that give us the Heisman [block]? Not a good fit for us.

“Having a cooperative partnership, which is what we have most of the time, is a great fit for us.”

Join Eric Armenat and Mike McQueeny at Upstate Capital's next Buffalo event: Under the Hood: Multisorb and Summer Street, for an in-depth look at private equity investment, on November 15. 

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