Private equity company EverEdge has bought Auckland's Accord Precision, New Zealand's biggest certified manufacturing and assembly business, for an undisclosed sum.
The company has International Standards Organisation (ISO) certification and US Food and Drug Administration (FDA) certification for the manufacture of medical products.
The business, established 50 years ago, has gone from being a conventional machine shop to a full-solution provider for sophisticated global customers.
Accord's customers include New Zealand's F&P Healthcare, US tractor company John Deere, Swedish conglomerate Assa Abloy and US diving helmet company Kirby Morgan.
The company provides end-to-end precision manufacturing and assembly, from research and development and consultative design through to complete assembly and distribution.
New Zealand-based EverEdge's chief investment officer, Francis Milner, said "intangible" assets are a key part of its investment strategy.
"Today, intangible assets are a key driver of value and growth within an organisation," he said.
However, these assets are typically absent, mis-priced, or under-valued on balance sheets.
Milner said this had created a market vacuum whereby this asset class is largely ignored by traditional investment funds and significant intangible asset value remains unrealised or unknown.
"Despite Accord being relatively asset heavy, we identified that some of its most valuable elements are intangible and off-balance sheet.
"By viewing the business through an investment lens focused on intangible value, we identified several assets that create an unfair advantage for Accord against its competitors," he said.
Accord was founded in 1970 by the Hanson and Stronge families and is now the largest precision manufacturing and assembly business in New Zealand.
EverEdge Capital focuses on investment in mid-market companies where sustainable value can be generated through investment.
Milner declined to give specifics about the transaction but said the Accord was "very profitable" with revenue of just under $30 million and earnings before interest tax depreciation and amortisation "well above" $4m.
"There is an interesting story about New Zealand provenance and 'New Zealand Inc' manufacturing.
"We (Accord) are at the coal face of that. We are supplying from New Zealand an international client base which we really should not be able to do, but through the years of refining the business model and aligning it with an international customer base we are able to do it," he said.
On the map
He said supply chain disruption had put New Zealand manufacturing in the spotlight.
"For better or for worse, the Covid-19 scenario has put New Zealand on the map as a source of manufacturing.
"The customers that we are specifically dealing with are specifically looking to not go to China.
"That (sourcing product from China) does not actually play out when you talk about precision engineering - the type of components used in medical equipment where safety certification is required," he said.
"Accord is one of those businesses that have flown under the radar screen for some time.
"For all intents and purposes it grew out of a machine shop but now it is a full provider of design, production and assembly, so effectively it is a one-stop shop," he said.
Accord makes a large portion of the componentry for F&P Healthcare's "Airvo" respiratory system.
"That means we have to be medically certified with an US Food and Drug Administration (FDA) certificate - one of just two in the country."
Accord was one of the legacy companies to come out of New Plymouth's McKechnie group.
Various companies within the group have been bought out by management over time.
Milner said an "intangible" may be an asset but which does not necessarily belong on the balance sheet.
"Our thesis - which plays out here - is that we don't have much of an advantage in terms of capital infrastructure.
"It's what you do with it, and New Zealand businesses are innovative within this space.
"Accord is a unicorn among horses in that machining space," he said.
The purchase was EverEdge's first 100 per cent acquisition in New Zealand.
The company has two factories - a machining plant in Pakuranga and an assembly plant at Highbrook.
It has 70 employees and is on the lookout for more.
Milner said it was an exciting time for New Zealand manufacturing, thanks in part to supply chain disruption around the world.
"Accord will become exclusive suppliers to global customers because their equivalent out of the US has not been able to come through," Milner said.
"There is a window of opportunity, and we are running against that."
The transaction was done through Apollo Precision Manufacturing, an investment vehicle managed by EverEdge.