Our Co-CIO, Francis Gannon recently penned a piece that focused on the dynamics between private equity and active small-cap management. One of the points he made was that well-managed, high-quality small-caps—in other words, the kinds of companies that Lauren Romeo, Andrew Palen, and I look for in Royce Premier Fund—are poised to benefit from the current environment in which private equity seeks liquidity:

“What’s interesting about the current cycle is how we’ve seen a few of our portfolio companies acquiring companies from private equity at significant discounts. In other words, public companies are currently becoming liquidity providers to private equity.”

This immediately made us think of Quaker Houghton (NYSE: KWR), a long-time holding that produces, develops, and markets industrial chemical products, including heat treatment, metal forming, forging, and tin plating fluids, as well as cleaners, casting lubricants, greases, ground control agents, and metal rolling oils.

Quaker Houghton – Executing Amid Challenges and Strategic M&A From Private Equity

Quaker has demonstrated remarkable resilience despite facing significant headwinds in 2024 and so far in 2025. The company has navigated a challenging macroeconomic environment characterized by weaker industrial activity in certain key markets (such as the U.S. and Europe), fluctuating raw material costs, and customer production downtimes in the auto and metalworking industries. Even amid several quarters of declining industry volume trend, however, Quaker has effectively maintained stable volumes year-over-year and quarter-over-quarter, a testament to its strong execution and ability to secure new business wins across all regions of the globe.

Another reason we have confidence in Quaker Houghton’s long-term success is directly related to the point Frank made about Royce portfolio holdings buying companies at attractive discounts from private equity sellers. We have been pleased with the way that Quaker Houghton’s management has been approaching M&A activity: Quaker’s pace of purchases has been picking up materially, with both bolt-on and larger acquisition opportunities. Specifically, over the last twelve months, Quaker has made five acquisitions, with Dipsol Chemical, a leading supplier of surface treatment and plating solutions and service providers, being the most recent, largest, and most strategic.

Quaker acquired Dipsol for approximately $150 million from Aspirant Group, a Japanese private equity fund manager based in Tokyo. Dipsol is an innovative market leader that has an established market position and strong customer focus, especially in the Asia-Pacific region. This acquisition will help expand Quaker’s advanced solutions businesses in attractive end markets with solid growth characteristics and high barriers to entry. Dipsol also provides significant cross-selling capabilities and should enhance Quaker Houghton’s ability to better meet, if not exceed, the needs of its global customer base.

While the broader industrial environment remains uncertain, we think Quaker is well-positioned to continue outperforming its end markets. Volumes are stabilizing, new business wins continue to support growth, and price-driven customer churn is dissipating—just as margins have arrived at the high end of their historical range. With its emphasis on profitable expansion, disciplined capital allocation, and M&A-driven value creation—part of it thanks to the liquidity needs of private equity businesses—we think Quaker is well positioned to capitalize on industry tailwinds as demand conditions improve and macro conditions stabilize.

A Pendulum Swing in the Premier Fund’s M&A Activity

Most notable to the Premier team is our capital allocation playbook being very active, which is a pendulum swing for the Fund—which saw more companies acquired from late 2021 through 2023 than companies we owned being the acquiror. Specifically, there were eight takeouts from 4Q21 through 3Q23 in the Fund. Since then, however, our Premier companies have clearly gone on the offensive. What follows is a list of portfolio companies that were acquirors and their targets from 4Q23 through May 2025, in three cases from private equity:

• FirstService / Roofing Corporation of America from private equity company, Soundcore Capital Partners ($413 million)
• Colliers International Group / Englobe from mid-market private equity firm, Onex ($475 million)
• Colliers International Group / Triovest
• Kadant / Dynamic Sealing Tech ($55 million)
• Haemonetics / Attune Medical ($160 million)
• JBT-Marel / Marel ($3.9 billion)
• Arcosa / Stavola ($1.2 billion)
• Valvoline / Breeze Autocare from private equity firm, Greenbriar ($625m)
• Stella Jones / Locweld ($85 million)

We do not know how long this trend will continue, especially in light of the recent reversal of portfolio companies going from acquisition targets to acquirors. The key point is that our process remains constant in our search for what we call Quality Compounders—those unique business models that have high returns on capital and high reinvestment rates. Our pursuit of such Premier businesses never ends.

Important Disclosure Information