Episode Summary
Executive Summary: Michael Fish of American Securities explains how the firm applied its middle-market, market-leading, management-partnership model to Milk Specialties Global: buy a niche leader, de-risk commodity exposure, invest in growth and operational improvements, expand internationally and via co-manufacturing, then exit through a traditional auction. The case illustrates disciplined diligence, long-term value creation, and skepticism toward continuation funds.
Main Topics: American Securities’ investing philosophy (Priority: 5/5): Fish describes the firm as a U.S.-focused upper middle-market private equity investor seeking number-one niche leaders with meaningful EBITDA and strong management teams, supported by a large in-house resources group. Milk Specialties Global’s business and market niche (Priority: 5/5): The company produces whey-based dairy ingredients used in sports nutrition, functional foods, and animal nutrition, serving recognizable brands and benefiting from global protein demand. Diligence and structuring around commodity and supply risk (Priority: 5/5): A major diligence focus was milk and whey price volatility. American Securities worked to shift raw-material risk back to suppliers and stabilize margins through contract restructuring. Value creation during ownership (Priority: 5/5): The firm grew international sales, invested in related products and facilities, improved efficiency and quality, and expanded into co-manufacturing to deepen customer stickiness and move up the value chain. Exit process and buyer selection (Priority: 4/5): Fish explains the sale process, including banker-led outreach, interest from strategics and financial buyers, and a flexible structure that allowed American Securities to roll equity to facilitate closing. Why American Securities avoids continuation funds (Priority: 4/5): Fish argues continuation vehicles create conflicts, blur liquidity and fee outcomes for LPs, and are less aligned than a straightforward exit, so the firm has stayed away from them. Lessons on management partnership and private equity discipline (Priority: 4/5): The episode emphasizes partnership with experienced management, shared vision offsites, and maintaining a long-term operating mindset even while holding assets for a typical five-plus-year period.
Key Arguments: American Securities prefers established, market-leading U.S. businesses with strong management and meaningful EBITDA because they offer a lower-risk path to value creation. Milk Specialties benefited from a secular tailwind in whey protein demand across human nutrition, animal nutrition, and functional foods. The firm’s key diligence insight was that supply-chain control and contract design could reduce exposure to milk-price volatility. Owning the business allowed American Securities to expand internationally, improve quality, and diversify products beyond powder into bars, beverages, chips, pretzels, and confectionery. Co-manufacturing transformed the business from a commodity supplier into a more strategic partner with sticky customer relationships. The exit was successful because the business performed well, the process was run professionally, and the buyer saw strategic upside in the company’s assets and customer relationships. Continuation funds were rejected because Fish believes a clean sale is more aligned and transparent for LPs and GPs than a partial, quasi-sale structure. American Securities’ large resources group creates tangible operational value, especially in ERP systems and procurement, which helps reduce risk and drive savings. The management partnership was central: the CEO and team rolled equity, remained involved through ownership, and helped produce outperformance versus the initial model.
Data Points: American Securities committed capital: $20 billion - Current capital base across eight private equity funds Firm founding year: 1994 - American Securities was founded alongside a family office Number of portfolio companies acquired: 70 to 80 - Approximate number over 30 years Managing directors: 23 - Senior investment team size Average MD tenure: 13 years - Shows team stability and continuity Resources group size: 58 full-time professionals - Operational support team at American Securities Sweet-spot EBITDA: $100 million to $150 million - Typical existing EBITDA target for investments Share of portfolio historically in industrials: 60% - Remaining investments split between consumer services and healthcare services Purchase date: August 2016 - When Milk Specialties was acquired Purchase price: $830 million - Transaction value for Milk Specialties Entry valuation: 7.2x LTM EBITDA - Purchase multiple paid at acquisition Debt financing: Almost $500 million - Financing used for the buyout Equity contribution: Almost $400 million - Equity put up by the sponsor Ownership period growth: 30% - Company growth during American Securities’ ownership from 2016 to 2022 International ingredient margin growth: 4x - International markets growth during ownership Capital investments leading to EBITDA: $56 million invested; $58 million EBITDA created - New related products and growth initiatives Debt repricing savings: $5 million more per year - Savings achieved in February 2017 after repricing debt Incremental debt raised: June 2021 - Raised additional debt after strategies worked Co-manufacturing facility acquired: Almost 100,000 square feet - Gluten-free K processing facility in Clara City, Minnesota Exit contract signed: December 2022 - Agreement to sell Milk Specialties Exit closed: Early February 2023 - Deal closed after signing the prior December Potential investments sourced annually: As many as 450 - Robust-market deal flow in American Securities’ target universe CEO win rate: 80%+ - Percentage of acquired CEOs who stayed through exit or remain today Procurement savings target: $96 million - Annual target for purchasing cost savings across portfolio companies Historical procurement savings: $40 to $60+ million per year - Savings achieved in the last three years Holding period: About five years, plus or minus - Typical private equity ownership duration Private equity workforce reference: 50 million people - Middle market companies collectively employ this many U.S. workers Middle market business count: Around 200,000 - U.S. businesses in the stated revenue range Middle market revenue range: $25 million to $1 billion - Definition used at the start of the episode
Pivotal Quotes: "Our sweet spot is the number one market share company in its niche, typically 100 to $150 million of existing EBITDA." — Michael Fish: Defines American Securities’ investment focus and risk profile "We are always looking for an industry tailwind to invest behind because it's kind of a blinding flash of the obvious." — Michael Fish: Explains the logic behind buying into growing markets like whey protein "It's a little bit uncomfortable to think about selling it, but not really selling it." — Michael Fish: Describes why American Securities avoids continuation funds
Implications: The episode shows that disciplined middle-market PE can create durable value through niche leadership, operational support, and management alignment. It also suggests transparent full exits may remain preferable to continuation structures for firms prioritizing LP clarity and clean alignment.
About Private Equity Deals
Allocator and asset management expert, Ted Seides, conducts in-depth interviews with interviews with top institutional money managers across private markets. Guests include principals and senior leaders from private equity, private credit, real assets, and other alternatives. We dive deep into individual deals to learn about deal dynamics, companies, and ownership that make private equity a force in institutional portfolios and the global economy. Learn more and join our community at capitalallocators.com.