Advanced Drainage Systems: Investing over the long-term
Advanced Drainage Systems (ADS) is the world's largest producer of HDPE corrugated plastic pipe. Founded in 1966 and headquartered in Columbus, Ohio, ADS serves the storm water drainage industry through a global network of manufacturing plants, distribution centers and independent distributors. Throughout its history, ADS has enjoyed nearly uninterrupted double digit growth as HDPE pipe has been widely recognized for its superior performance over concrete and steel pipe products in many applications.
What did ADS seek from a private equity partner?
In 1988, the management of ADS knew they had a problem. An early institutional investor needed liquidity, yet the owners and managers also had a lot riding on the introduction of a new product called N-12, and as a result they wanted to accommodate their shareholder in a very private transaction. Berkshire was introduced to this situation and was very pleased to become management's quiet minority partner to accomplish this recapitalization.
In the subsequent 19 years, ADS continued to achieve an amazingly consistent record of double digit growth as it built a leading market share position on the strength of its low operating costs and growing scale. As a result, when a second institutional shareholder desired liquidity, Berkshire was again eager to make a new investment, further cementing our relationship which now spans nearly two decades.
Berkshire's role
Berkshire's role in ADS was for a long period characterized as a quiet, professional, private institutional minority investor - engaged at the board level - always available for consultation on strategic matters and the general needs of a corporation experiencing a steady significant organic growth rate.
One of the long term targets for ADS was to buy or merge with a key competitor, Hancor Inc., as the overlap of regional production facilities provided attractive potential rewards from significant market share improvement and cost saving synergies. When this opportunity finally became possible in late 2004, Berkshire was happy to assist management in deal structuring and due diligence matters.
Outcome
The long term partnership between ADS and Berkshire has been a winner in all respects. ADS management welcomed an experienced institutional partner to help guide the Company along its path of consistent performance gains. And Berkshire has enjoyed the opportunity to work with a market leader riding its strong competitive position to ongoing gains, and ultimately, a key industry consolidating acquisition. The good news is that this partnership has every reason to continue for a long time to come.