Norwest Equity: A peek inside private equity

Norwest Equity Partners, the granddaddy of private equity shops in the Midwest, closed recently on one of the largest transactions in its 50-year history -- the $1 billion sale of its Iowa-based Becker Underwood to BASF, the German chemical giant.

Tim DeVries, Norwest Equity's top executive, said the considerable financial return was eclipsed only by the progress and growth of the company since 2004. Becker Underwood, with revenue of about $250 million, has become a global player in the agribusiness industry. Its business lines include seed corn, biological crop protection, turf and horticulture and animal nutrition.

Q Why are you so proud of this company?

A We purchased the business a long time ago for a lot less than a billion. You bet. The thing that attracted us to Becker Underwood ... is that [the company] provides what I'd call "true value." It's a real creation. When you increase the yield on a crop, when you get the corn from 175 to 185 bushels per acre and you use less fertilizer, less pesticide, less herbicide ... that has good things associated with it.

You are doing good, starting with feeding the world. And you're creating economic or environmental value or other value for everybody in the production chain. Land and water are finite resources. We've got more people to feed. The yield increases we are getting now are less than [the increases of] 10 or 15 years ago. Yet we have to produce more food with less water and the same amount of land. That's really important.

Q Private equity firms have been criticized as profit-lusting pirates in some cases, right?

A I preach to our folks, if you take good care of a portfolio company, it will take good care of us. You've got to do good, core things to have sustainable economic performance. Our business has changed. It's not just buy it and cut this and cut that. You've got to create real, intrinsic value. Then, everything else falls in place.

Former portfolio companies such as PeopleNet, Life Time Fitness, Paladin Brands were good companies with good plans. We take our resources and experience and build out teams and invest and grow a business by partnering with management teams. And we've ended up with some pretty big deals. Our world is so competitive. Back in the "Barbarians at the Gates" days [of the 1980s], this industry was just getting started. You could buy something, do some financial engineering and just sell it. For the prices you have to pay now ... you need to do a lot more.

Q Is Becker Underwood the biggest deal in your history?

A I think it's the biggest thing that we've bought and sold. We also did Life Time Fitness. We invested and later took that company public at a bigger number. I think the initial market capitalization was $1.3 billion or $1.4 billion.

Q It's been an active year for Norwest Equity as you've sold a few businesses and invested $300 million in several, including Minnesota Rubber, which has 1,100 employees, nine plants globally and makes rubber and plastic components and assemblies for the automotive, plumbing, industrial, medical and other industries. The CEO, Jim Lande, has said he hopes to expand into China and the medical market, right?

A Minnesota Rubber is a very good business that's very successful and that has built a lot of capabilities, and we think we can help make it a bigger, better, stronger business. They have great engineering and great products.

A This has been a very good year. We've invested a lot of money. The successes came earlier in the year. Things are very quiet right now. Is that Washington and the fiscal cliff? I'm not sure. This business comes in waves. And we had waves in the spring and summer. I don't think the fiscal cliff thing is the total story. But I'm at a loss to tell you exactly what and why it's happening. We've had economic uncertainty before.

Q Where are we on the price that buyers are willing to pay for good businesses?

A Whether private equity guys or big multinationals, there's a lot of cash in the system. Deal volume is low [at this time]. But when a BASF or a Norwest Equity really want something, they step up and pay. For the really good stuff we're back to 2005-06 valuation levels. The great stuff fetches great prices.

Q What's your outlook for 2013?

A I have no clue. I really don't know. It's the economy driven by perception, politics and stuff like Europe. I also wonder, if all that turns around, do we have a little imbalance in supply and demand? Have people pushed deals earlier so there's less activity going forward? In politics and the economy, perception is important. Business adapts. Business always look for a way to grow.