Private Equity: Golden Gate Private Equity 13F Filings

May 19, 2020 | Private Equity

One of the more interesting 13F filings at the deadline last week came from Golden Gate Private Equity. Located as one would expect in San Francisco, Golden Gate is a unique private equity firm that operates more like a merchant bank that a private equity fund.

Golden Gate says its investor base is comprised mainly of perpetually-oriented capital sources from around the world. When they invest in companies, they say their approach is to recapitalize, restructure, and ultimately build meaningful businesses in partnership with management over an indefinite time horizon.

Golden Gate Private Equity 13F Filings

One of Golden Gate’s new buys in the quarter has seen brutal selling since releasing earnings in late April. MTS Systems Corporation (NASDAQ: MTSC) supplies test systems, motion simulators, and sensors in the Americas, Europe, and Asia. They make things like road simulators, vehicle test equipment, electrical motors, and energy recovery systems.

They also make software to perform static and fatigue testing of aircraft; products for blades, bearings, and wind turbines; structural engineering systems, such as static and dynamic testing; and seismic simulation tables.

The company sells to a wide range of industries, including aerospace, energy and renewable energy companies, and vehicle manufacturers. The coronavirus has walloped almost all of its customer base with the energy segments taking additional hits from the oil sell-off sparked by the Russian-Saudi price wars.

MTSC Restructuring

The company is currently undergoing a restructuring of its entire business to reflect the new economic realities they are facing. They are pivoting their focus to the fastest-growing markets, such as renewable energy, entertainment, and simulation, and significantly reduce their structure. The cost-cutting moves are expected to save them about $10 million a year going forward.

If they execute the restructuring, the stock has enormous potential when the economy picks back up in a post-pandemic environment.

Golden Gate also made a large purchase of Focus Financial (NASDAQ: FOCS) in the quarter. Focus is a KKR (NYSE: KKR) portfolio company that has been rolling up Registered Investment Advisors around the United States. The RIA industry has seen a lot of M&A activity in the past few years, and the fight to gain scale will continue for years. Those who gain size and assets should do very well, and it will be tough for most acquirers to compete with KKR’s firepower.

Golden Gate also made a large purchase of Valvoline (NYSE: VVV) as that stock plunged along with oil prices. Valvoline sells automotive maintenance products, particularly lubricants, to retailers and installers. The company also operates and franchises quick-lube oil change centers. All of their product lines have seen sharp declines as the economy shut down, and the number of miles driven declined dramatically in the quarter.

Golden Gate has a unique approach to private equity. Following their public equity portfolio may help to identify potential turnarounds with upside potential.

Related: Private Equity: Northwestern Studies Industry’s Crisis Reaction

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