How Platinum Equity built ‘foundation of trust’ to earn Kohler Co.’s confidence as investment partner in energy resilience business

“This strategic move allows Kohler to focus and invest in our global Kitchen & Bath, Wellness, and Hospitality businesses while also positioning the Energy business to reach its full potential under the ownership of Platinum Equity,” David Kohler said when the transaction closed in May 2024. “I want to thank the entire Energy team; the performance of this business over the last three years has been remarkable. Exciting times are ahead, and Energy will forever have a special place in our company’s heritage.”

Financial terms of the deal were not disclosed.

“Platinum is committed to strengthening Kohler Energy’s position as an industry leader and investing in development of a new generation of innovative energy resilience solutions,” Platinum Equity Co-President Jacob Kotzubei said. “We are excited about the prospects for the business, which has been at the forefront of energy resilience for more than a century. We have tremendous respect for David Kohler and the Kohler leadership team, appreciate their confidence in us, and are grateful for their continued partnership.”

Brian Melka, CEO of Kohler Energy, added: “The demand for resilient energy is growing, and the world needs much more of what we do. Platinum Equity firmly supports our growth path ahead and will can help further accelerate our progress in the global energy resilience industry.”

Kohler Energy is comprised of multiple business units and has a broad portfolio of products including electric generators for both industrial and home settings, gas and diesel engines, and electric powertrain components.

The deal marks Platinum Equity’s latest complex carveout from a global corporate company. It completed similar transactions with familiar names like Ball Corporation, Caterpillar, Emerson Electric, Ingersoll Rand and Johnson & Johnson.

“An important reason we were chosen centers on our corporate carveout abilities and joint venture successes to date,” Louie said.

Kotzubei and Louie offered additional insights about the investment.

Q: Platinum is the majority investment partner in Kohler Energy, and Kohler Co. has a minority interest. Why did a joint venture make sense here?

Louie: We like joint venture structures because they allow the seller to retain skin in the game. When sellers desire a joint venture structure with Platinum, we attribute it to our history of successes with joint venture deals. David Kohler has a strong conviction that the strategic investments he’s made in the business, combined with our operational and M&A capabilities, make a robust combination.

We are also intentional in searching for opportunities that can leverage our experience from previous industrial tech deals, like the ones we did with Vertiv and Emerson. We are always looking for ways to replicate the success we’ve had with other industrial tech investments and build on themes and playbooks we have had success with.

Q: Why did Kohler reengage with Platinum after the process was shut down in 2019?

Kotzubei: We stayed in touch with the Kohler family, and let them know that we were still interested. They relaunched the process in March of 2023, and we were invited to participate in that process. We worked hard to really distinguish ourselves over several months of diligence. This is a complex global carveout and we have a lot of experience. There are indications that when Kohler made the decision to focus on Platinum, we were picked because of our track record, because of our reputation, and because of the people at Platinum involved in the diligence process.

Q: Why is Platinum known for doing carveout transactions?

Louie: It is a core part of our firm. Tom Gores started the firm by doing corporate carveout transactions. We have a long-standing history of successes in executing corporate carveout transactions, particularly on a global basis. I think we‘ve built a reputation trying to execute deals as seamlessly as possible while in parallel being a great transaction partner. Establishing a history of successful transactions has also allowed us to continue building out our operations team, which has done a good job of executing corporate carveouts and driving value. Together, that creates a kind of virtuous circle.

Q: What are the tailwinds for this business?

Kotzubei: A big driver for this business is data centers, which require backup generator power in the event the grid fails. We know that space well through our investment in the carveout of the Network Power Business (Vertiv) from Emerson Electric, which supplies uninterruptible power supplies and cooling to the data center market.

Louie: There have been measurable increases in the number of billion-dollar weather events, and they’re likely only going to continue. This should drive an increased need for resilient energy solutions. We also see a massive issue today with aging grid infrastructure. The majority of the world’s power grid was built over 40 years ago and in our view this leads to significant vulnerabilities as well as an inability to connect with modern renewable energy sources.

Kotzubei: We also like the sustainability possibilities. We spent time on the sustainability characteristics of providing backup generators and we think this is a business that fundamentally has the engineering talent to deliver whatever energy resiliency methodology becomes dominant. For instance, today large-scale backup generators generally run on traditional fuel, but Kohler’s entire offering of mission-critical diesel generators is compatible with hydrotreated vegetable oil, which is up to 90% carbon neutral and made entirely from waste products. HVO is readily available in Europe. Not so much yet in the U.S. right now, but they’re certified for it.  If hydrogen were to become dominant, they have those capabilities, too.

Q: How will Platinum’s operational focus help Kohler maintain its position as a leading energy resilience solutions provider?

Louie: We plan to leverage our industry relationships and our expertise around supply chains, manufacturing and digital marketing to drive efficiency and growth. It is our view that sustainability is also a critical focus. Kohler Energy has constantly evolved, investing in alternative technologies and developing innovative products that reduce the company’s carbon footprint. We’re going to continue supporting the R&D and innovation efforts to not only remain compliant, but also remain ahead of the curve as it pertains to increasing regulatory and emission standards globally.

At the same time, we have a huge amount of respect for the management team and the Kohler family. We’re going to build on and accentuate what David Kohler and his team have accomplished.