Steamist is a leading, premium-branded manufacturer of steam generators primarily for luxury residential bathrooms. Two plumbing industry executives, Jeff Noll and Jeff Carney, each leaders at the American division of a Global 1000 plumbing manufacturer, identify Steamist as an excellent acquisition opportunity. When their board of directors pass on the Steamist opportunity, the duo contacts an M&A advisor to identify a private equity fund with whom they could partner to acquire Steamist.

Cognizant of RAF’s operating model and philosophy, this advisor facilitates a meeting. Based upon both personal chemistry and the strength of the opportunity, the parties aggressively pursue the acquisition. Solid relationships quickly emerge among the new partners and with the founder of Steamist, as well as with the existing management team. Within a few months of the initial meeting, RAF, in partnership with Jeff Noll and Jeff Carney, acquires Steamist. Consistent with his desires, the founder retires shortly after the closing, while the remaining managers, along with Mssrs. Noll and Carney, form the new leadership team.

The company achieves record sales and earnings. The new team overhauls the existing sales and marketing materials, initiates a new branding effort, and expands and modernizes the product line. Furthermore, the search begins for a new and larger manufacturing facility. While much is changed, the tradition of product quality, providing strong support for the company’s distribution partners and the family-like culture of Steamist, remain constant. Continued and accelerated growth looks very likely.

As the year begins to unfold, however, tailwinds become headwinds as the Great Recession and corresponding housing crisis rapidly unfurls. With the housing market in free fall, unsurprisingly, Steamist’s sales plummet. Revenues decline precipitously, while profitability margins compress. Had Steamist been financed by a typical private equity group with stand-alone financing, the company would have faced a credit default and possible liquidation. The creditors would have been in control of the business and its destiny. Cost cutting, job loss and equity degradation would have been swift and severe. In contrast to the traditional private equity approach, however, RAF has been built to weather short-term crises, to protect fundamentally sound assets, and to enable them to succeed long-term. Because our companies participate in a portfolio-wide revolving credit facility, the strong operating performance of RAF’s other portfolio companies (particularly those that operate more independently of the business cycle), and the lower leverage that RAF deploys across its businesses, carries Steamist through this crisis. Employees are retained, production compromises are not needed and investments in product development and marketing continue unabated.

RAF and Steamist not only persevere but, in fact, double down. Utilizing leading design and technology resources, significant investments are made in developing a new generation of products. Our wholly owned sourcing and logistics arm, RAF Asia, assists in finding reliable, state-of-the-art sources for components that Steamist had traditionally imported. Vendor relationships are also established to produce a new suite of product features, including music and chromatherapy. During this same period, we reaffirm our commitment to domestic manufacturing and make the decision to move from our cramped, outdated production facility to a larger, modern facility located within five miles of Steamist’s existing northern New Jersey location. This enables us to maintain our loyal, stable employee base. Steamist emerges stronger than ever with best-in-class products and facilities.

Steamist’s revenues continued to rebound faster than the general plumbing industry, and our market share continued to grow. Our flexible capital structure gives the company the ability to weather the storm during the Great Recession and housing bust. We build digital capabilities and develop the EliteSteam brand while preserving traditional retail relationships.

Following a broad process that targeted 50 strategic buyers and 150 PE funds, the company is sold to Masco Corporation (NYSE: MAS). Through our patient capital approach, we were able to successfully hold the business for nearly 15 years and still achieve an IRR of >20%.