Montage Partners Awarded PE Hub’s Deal of the Year (North America Small-Cap)
This article by Rafael Canton was originally published in PE Hub.
Scottsdale, AZ — As demand for data centers soars, so too do the revenues of companies that equip and service them. So when Montage Partners decided to sell Southwest Data Products to steel maker Nucor for $115 million in 2024, it was able to book a tidy net MOIC of 11.5x. For tapping into that mega-trend and making such a strong return, PE Hub named the exit its Small-Cap North America Deal of the Year.
SWDP makes data center accessories such as airflow containment systems for energy optimization, server enclosures like cabinets and racks, cable management structures, and physical security caging. Cloud computing and the rise of AI have led users to move from on-premise, physical IT infrastructures to cloud infrastructure. That increased interest in data centers has trickled down to companies like SWDP, founded in 1986 by Martin Ament.
But the success wasn’t all due to the data center boom. SWDP’s growth during Montage’s investment was all organic, with two main strategies. First, SWDP launched an airflow containment line of products. Second, it set up an installation division that it said was a differentiator, leaving less responsibility for customers and shorter wait times. “It’s no small undertaking,” Jordan Tate, Montage co-managing partner, told PE Hub. “It required significant ramp-up in headcount and is in a lot of ways a different business than what manufacturing is. But it was well received by customers to have a single point of responsibility.”
Another driver of growth was that SWDP manufactures its own branded products with a high degree of customization. Montage also helped the company build a management team around Ament to help SWDP as it scaled up. SWDP expanded its number of team members by 80 percent over the hold period.
Frothy market
Scottsdale, Arizona-headquartered Montage acquired SWDP in 2017. Montage does not have precise plans for hold timelines. It has invested in 20 platform companies, so far exiting 11. “On average, we fall within the customary four- to five-year hold period that you hear about in private equity,” he added. “SWDP was seven. That’s not outside of the norm for us though. We could have gone to market earlier and there was a good story behind the business, but the business was growing in double digits, and there was just a lot more work to do.”
SWDP’s revenue grew 5x through Montage’s hold, while EBITDA expanded by 7x. The interest in SWDP as a potential acquisition was significant. “When we sold the company, it was a competitive process,” Tate said. “There was a lot of interest from a variety of strategic and financial buyers, and the tailwinds in the data center market certainly helped stoke some of that interest.”
A win-win-win
Eventual winner Nucor is headquartered in Charlotte, North Carolina, while SWDP is based on the other side of the country in San Bernardino, California. But its proximity to Nucor Warehouse Systems’ production facility in southern California offered integration opportunities. SWDP also uses many types of steel as raw material that Nucor facilities can provide.
“It was a win for management,” Tate said. “It’s a win for the founder of the company, a win for us, and it’s a great win for Nucor, who bought a great business. And [Nucor is] going to continue to scale and probably do things that we weren’t able to realize over the coming years with the business.”
With cloud computing and generative AI becoming ever more ingrained in the business and consumer world, it’s clear that SWDP won’t be the last company servicing the data center industry that provides a winning deal for private equity.
About Montage Partners
Founded in 2004, with offices in Scottsdale, Arizona and Salt Lake City, Utah, Montage Partners is a people-first private equity firm dedicated to helping established businesses reach transformative growth. Montage Partners invests in companies headquartered in the U.S. or Canada with $1.5 million to $7 million in EBITDA in the technology and professional services, healthcare, industrial products and services, and consumer sectors. Above all other investment criteria, Montage Partners invests in exceptional people.
