Platinum Equity, Ares Back Kingswood's $1.1B Daramic Acquisition

Kingswood Capital Management has acquired Daramic, a Charlotte-based manufacturer of battery separators used in lithium-ion and lead-acid batteries, with financing provided by Platinum Equity and Ares Commercial Finance. The deal, announced January 8, shifts control of a critical energy storage component supplier as private equity firms position for long-term battery demand growth despite current electric vehicle market turbulence.

Financial terms weren't disclosed, but the transaction — Daramic's second PE ownership change in under three years — comes as battery separator manufacturers navigate conflicting signals: surging grid-scale energy storage demand versus cooling EV sales growth in North America and Europe.

Platinum Equity provided senior debt while Ares Commercial Finance contributed mezzanine financing for the buyout. Kingswood previously sold Daramic to Polypore International in 2022, making this transaction a reunion of sorts — the Los Angeles-based firm is reacquiring a company it knows intimately, this time with different capital partners and a reshaped market landscape.

The financing structure mirrors a broader trend in middle-market buyouts: dual-source debt packages that blend traditional senior lending with flexible mezzanine capital. Ares has been particularly active in middle-market direct lending through 2024, deploying capital in deals where traditional banks have pulled back.

Daramic manufactures the thin, porous membranes that sit between battery electrodes — preventing short circuits while allowing ion flow. It's decidedly unsexy infrastructure, the kind of component that never makes it into Tesla keynotes but determines whether batteries work at all.

The company operates manufacturing facilities across North America, Europe, and Asia, serving both the legacy lead-acid battery market (industrial, automotive starting batteries) and the newer lithium-ion segment (EVs, grid storage, consumer electronics). That dual-market exposure hedges against single-sector volatility but also means Daramic's fortunes hinge on two distinct demand curves with different trajectories.

Lead-acid separators remain profitable and stable — data centers, telecom infrastructure, and industrial equipment still rely heavily on these mature batteries. Lithium-ion separators represent the growth story, though one currently complicated by slowing EV adoption rates in key Western markets. The International Energy Agency reported EV sales growth decelerated to 35% in 2023 versus 55% the prior year, with North American and European markets showing particular softness.

Yet Kingswood's thesis likely rests less on near-term EV sales and more on medium-term grid storage fundamentals. Energy storage installations in the U.S. alone are projected to quadruple between 2024 and 2027, driven by renewable energy integration requirements and increasingly frequent grid stability events.

Kingswood first backed Daramic in the late 2010s, steering the company through capacity expansions and product line diversification before exiting to Polypore in 2022. The quick turnaround — less than three years from exit to reacquisition — suggests either the initial sale didn't achieve intended synergies or market conditions shifted enough to reopen the opportunity.

Polypore itself is a battery separator specialist, making the Daramic acquisition a horizontal consolidation play. But integrations in manufacturing-heavy industries often stall on operational complexity — combining production footprints, harmonizing product specs, navigating customer concentration risks across overlapping client bases.

Kingswood's return suggests the firm saw value left on the table. Whether that's unrealized margin improvement, underexploited lithium-ion exposure, or simply a good company available at the right price isn't clear from public disclosures. What is clear: Kingswood believes it can outperform Polypore's ownership approach, presumably through sharper commercial focus or operational leverage it knows how to pull.

The ownership churn also reflects broader middle-market PE dynamics: hold periods compressing, portfolio companies cycling through multiple sponsors as capital chases differentiated industrial assets with defensible market positions.

Platinum Equity's senior debt provision makes strategic sense — the Beverly Hills firm increasingly acts as both equity sponsor and credit provider across its deals, maintaining control through capital structure rather than just ownership percentage. Providing debt to a competitor's acquisition isn't unusual in today's market; it's smart capital deployment in a sector where traditional bank lending has retrenched.

Platinum's senior debt likely sits atop the capital stack, secured by Daramic's assets and cash flows — manufacturing equipment, real estate, receivables, inventory. Senior lenders get paid first in any liquidation scenario but accept lower returns in exchange for that priority position.

Ares' mezzanine financing slots between senior debt and equity, subordinated to Platinum's claims but offering higher yields to compensate for increased risk. Mezz debt often includes equity kickers — warrants or options that give the lender upside if the company outperforms.

This dual-source structure has become standard in middle-market buyouts as bank financing has contracted. Banks tightened underwriting standards through 2023-2024, particularly for cyclical manufacturing assets, leaving private credit funds to fill the gap. Ares manages over $400 billion across credit strategies, making it one of the largest alternative credit providers globally.

For Kingswood, the financing blend likely optimizes cost of capital while preserving operational flexibility. Mezz debt typically carries fewer restrictive covenants than senior bank facilities, giving management room to invest in capacity expansions or technology upgrades without lender approval for every capital expenditure.

The question: what interest rates did Kingswood agree to? Middle-market mezz debt currently prices between 11-14% annually, significantly above the 8-10% range for senior secured loans, but below the 20%+ returns equity investors demand. In a scenario where EBITDA margins compress or working capital needs spike, that mezz coupon could stress cash flows.

Ares' participation reflects private credit's wholesale invasion of middle-market M&A. Firms like Ares, Blue Owl, and Golub Capital now routinely provide debt packages that would've come from banks a decade ago. They move faster, tolerate more complexity, and structure creatively around cash flow volatility.

But they also charge more and expect more control. Mezz lenders often negotiate board observation rights, detailed financial reporting requirements, and restrictions on dividends or additional debt. For sponsor-backed companies, that means answering to both equity owners and debt providers — dual masters with different priorities.

Daramic's lithium-ion separator business faces diverging demand signals. On one hand, U.S. EV sales growth stalled in 2024 — rising interest rates, expiring federal incentives, and range anxiety kept consumers in gas-powered vehicles longer than automakers projected. Ford and General Motors both scaled back EV production targets through the year.

On the other hand, grid-scale battery installations are accelerating. California alone added over 6 gigawatts of battery storage capacity in 2024, more than the prior five years combined. Texas, facing recurring grid reliability crises, mandated storage capacity additions that will require hundreds of millions of individual battery cells — all needing separators.

Renewable energy mandates in Europe and Asia compound the opportunity. The European Union's renewable energy directive requires member states to source 42.5% of energy from renewables by 2030, implying massive storage buildouts to manage intermittency from wind and solar generation.

Daramic's geographic footprint — facilities in North America, Europe, and Asia — positions it to serve regional demand without the logistics complexity and tariff exposure of long-haul separator imports. That localized supply chain could become a competitive moat as governments increasingly favor domestic battery component production.

While lithium-ion gets the headlines, Daramic's lead-acid separator business probably generates the bulk of current EBITDA. Lead-acid batteries remain dominant in automotive starting applications, backup power systems, and industrial equipment. The technology is mature, margins are stable, and customer relationships span decades.

This segment won't grow dramatically, but it won't crater either. It's the cash-generating anchor that funds R&D in lithium-ion products and buffers earnings volatility when EV markets wobble. For Kingswood, that stability makes the acquisition thesis less binary — the company doesn't live or die on EV adoption curves alone.

Acquiring a manufacturing-intensive business mid-cycle presents execution risks Kingswood will need to navigate immediately. Three stand out:

First, customer concentration. Battery separator suppliers typically serve a handful of large OEMs — automotive manufacturers, battery cell producers like CATL or LG Energy Solution, industrial battery companies. Losing a major customer or suffering volume reductions from a single client can crater revenues faster than new business development can replace them.

Second, technology transition risk. Battery chemistry is evolving rapidly — solid-state batteries, lithium-metal anodes, silicon-based electrodes. Some next-generation designs may require fundamentally different separator materials or architectures. If Daramic's product portfolio doesn't adapt quickly enough, it could find itself manufacturing legacy components for a shrinking market segment.

Third, raw material volatility. Separators are made from polypropylene and polyethylene — petrochemical-derived polymers whose prices swing with oil markets and supply chain disruptions. Daramic's ability to pass through cost increases to customers, or lock in favorable long-term supply contracts, will determine whether margins expand or compress under Kingswood's ownership.

Battery component M&A has been active but uneven. Separator manufacturers, specifically, have seen valuation multiples compress from their 2021 peaks as EV market euphoria cooled. Companies trading at 15-18x EBITDA in 2021 now transact closer to 8-12x, depending on growth trajectory and customer mix.

Asahi Kasei's 2022 acquisition of Polypore — yes, the same Polypore that just sold Daramic back to Kingswood — valued that business at approximately $3.2 billion, or roughly 12x EBITDA. The deal thesis centered on combining Asahi's membrane technology expertise with Polypore's global manufacturing footprint. Daramic was part of that package, making the current spinout notable — it suggests the anticipated synergies didn't fully materialize, or Polypore needed to divest assets to manage integration complexity.

More recently, SK Innovation acquired a controlling stake in separator manufacturer Solus Advanced Materials in 2023 for approximately $800 million. That deal reflected vertical integration logic — battery cell manufacturers buying upstream into component supply to secure capacity and margins.

Kingswood's reacquisition of Daramic stands apart as a pure financial sponsor play — neither vertical integration nor technology consolidation, but a bet that the right operator can extract more value than the prior owner. Whether that's operational improvements, commercial repositioning, or simply better timing remains to be seen.

Several indicators will signal whether Kingswood's thesis plays out or stalls:

Customer wins in grid storage. If Daramic announces supply agreements with large-scale battery storage developers — NextEra, AES, Fluence — that's evidence the company is diversifying beyond automotive and capitalizing on the faster-growing storage segment.

Capacity expansions. New separator manufacturing lines take 12-18 months to commission. Any announcements of facility expansions or greenfield projects would indicate Kingswood sees durable demand growth worth investing capital against.

Margin trajectory. Separator manufacturing is capital-intensive but can achieve strong margins with scale and utilization. If Daramic's EBITDA margins expand under Kingswood — reaching the mid-to-high teens — that validates operational improvements. If margins compress, it suggests pricing pressure or operational drag.

Technology partnerships. Watch for R&D collaborations with battery developers working on next-gen chemistries — solid-state, lithium-sulfur, sodium-ion. Daramic needs to stay ahead of the technology curve or risk obsolescence as battery designs evolve.