Archives for December 11, 2013

Morgenthaler Exits Avtron Aerospace

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Morgenthaler Private Equity has sold Avtron Aerospace to private equity firm CapitalWorks.

Avtron Aerospace was one of three companies owned by Avtron Holdings which Morgenthaler acquired in November 2007. In March 2012, Avtron Loadbank was sold to Emerson and then in October 2012, Avtron Industrial Automation was sold to Nidec.

Avtron Aerospace is a designer and manufacturer of electrical, electronic, and hydraulic aircraft component test products used in the commercial and military aerospace markets. The company’s customers span the aerospace supply chain and include aircraft manufacturers, aircraft component OEMs, commercial airlines, independent MRO providers, and foreign and US military forces. Avtron Aerospace employs approximately 110 people. The company was founded in 1953 and is based in Independence, OH (www.avtron.com).

“We are proud of what we have accomplished over our six year investment in Avtron. Morgenthaler worked closely with management to build three market leading companies–Avtron Loadbank, Avtron Industrial Automation, and Avtron Aerospace–and then divested each one successfully in three separate transactions,” said Karen Tuleta, Partner at Morgenthaler. “On behalf of myself, Peter Taft, Matt Yohe, and Mark Wachtmeister of Morgenthaler, as well as Rich Garcia of Avtron Holdings, it has been a pleasure working with the very talented management teams at each of the three Avtron companies and we wish them all continued success.”

Morgenthaler Private Equity invests in companies in the lower middle market that have transaction values between $25 million and $150 million and EBITDAs in excess of $5 million. Sectors of interest include high-value manufacturing and proprietary business services. The firm has $3 billion of capital under management and has offices in Cleveland and Boston (www.morgenthaler.com).

“I personally want to thank Morgenthaler for its collaborative approach and strategic insights over the course of our partnership. After successfully implementing many growth and operational improvement initiatives, Avtron Aerospace is well-positioned for future growth, and the company is excited to begin a new partnership with CapitalWorks,” said John Pesec, President and CEO of Avtron Aerospace.

CapitalWorks acquires mid-west based middle market companies that have revenues from $15 million to $75 million and EBITDAs of $3 million to $9 million. Sectors of interest include manufacturing, value-added distribution, business services, and financial services. The firm was founded in 1999 and is headquartered in Cleveland, OH (www.capitalworks.net).

Stifel, Nicolaus & Company served as financial advisor to Morgenthaler Private Equity.

© 2013 PEPD • Private Equity’s Leading News Magazine • 12-11-13

Fulcrum Exits Alumicor

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Fulcrum Capital Partners has sold its portfolio company Alumicor Limited to Apogee Enterprises for approximately C$54 million. Fulcrum Capital acquired Alumicor in 2007 through its third investment fund.

Alumicor is a manufacturer and supplier of architectural aluminum building products, serving the institutional, commercial and industrial markets across Canada. The company is headquartered in Toronto (www.alumicor.com).

Apogee Enterprises (Nasdaq:APOG) is a designer and developer of glass products, services, and systems primarily in North America, Europe, and Brazil. The company operates in two segments, Architectural Products and Services, and Large-Scale Optical Technologies. The Architectural Products and Services segment designs, engineers, fabricates, installs, maintains, and renovates the walls of glass, windows, storefront, and entrances comprising the outside skin of commercial and institutional buildings. The Large-Scale Optical Technologies segment manufactures and markets value-added glass and acrylic products under the Tru Vue brand name primarily for the custom picture framing market. This segment distributes its products through independent distributors and retailers, as well as directly to museums, and public and private galleries. Apogee Enterprises was founded in 1949 and is headquartered in Minneapolis (www.apog.com).

Fulcrum Capital Partners manages over C$750 million of capital and invests both equity and subordinated debt in companies with revenues of C$10 million to C$250 million. Sectors of interest include services, manufacturing, consumer products, distribution, food and retail. The firm has offices in Vancouver and Toronto (www.fulcrumcapital.ca).

© 2013 PEPD • Private Equity’s Leading News Magazine • 12-11-13

Riverside Acquires Hytec

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KEYMILE, a portfolio company of The Riverside Company, has acquired Hytec Gerӓtebau GmbH, a manufacturer of communication networking products.

Hytec is a manufacturer of communication networking products designed to withstand harsh environmental conditions. Products include low-data rate modem technologies such as small Ethernet managed and unmanaged switches, analog modem technology, and power line communication. The company is based in Mannheim, Germany (www.hytec.de).

KEYMILE is a manufacturer of data transmission systems, principally serving utility companies, oil and gas operators, and public telecommunications providers. Riverside acquired the company in November 2011. KEYMILE is headquartered in Hannover, Germany (www.keymile.com).

One of the immediate benefits the addition of Hytec brings to KEYMILE is the ability to enter new growing markets in energy, utilities and transportation with highly adapted small devices relevant for the power automation and railway communication market sectors. “This is a highly strategic addition to KEYMILE,” said Riverside Partner Peter Schaberger. “Hytec delivers some outstanding patents and product-development capabilities not previously within KEYMILE’s scope, which will allow KEYMILE to bring advanced new products to market quickly.”

Working with Mr. Schaberger on the transaction for Riverside were Vice President Balázs Tahy, Vice President Sven Schulze and Origination Vice President Patrick Schaich.

The Riverside Company is focused on the smaller end of the middle market and invests in businesses valued at up to $250 million (€200 million in Europe). Since 1988, the firm has invested in more than 321 transactions with a total enterprise value of more than $6 billion. The firm’s current portfolio includes more than 70 companies. The Riverside Company is headquartered in New York with additional offices in Atlanta, Chicago, Cleveland, Dallas, Los Angeles, San Francisco, and London (www.riversidecompany.com).

“Hytec is an outstanding company and has built up a loyal customer base despite few sales resources,” said KEYMILE CEO Björn Claassen. “Hytec has an excellent team and an efficient R&D process, and we´re excited to have them to join KEYMILE.”

© 2013 PEPD • Private Equity’s Leading News Magazine • 12-11-13

Thoma Bravo Exits Network Instruments

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Thoma Bravo has sold its portfolio company Network Instruments to JDS Uniphase for $200 million in cash. The sale is expected to close within 45 days.

Network Instruments provides network management services to medium-to-large enterprises and Global 2000 companies. The company supports numerous IT initiatives including unified communications, cloud, data center consolidation and virtualization. Network Instruments is based in Minnetonka, MN (www.networkinstruments.com).

“Network Instruments’ success story is a reflection of Thoma Bravo’s proven growth strategy in the network management space,” said Thoma Bravo managing partner Seth Boro. “Through the firm’s partnership with Network Instruments’ management, we built upon the company’s market-leading technology and customer base, supported new product introductions and accelerated revenue growth.”

Thoma Bravo provides equity and strategic support to management teams building growing companies. The firm originated the concept of industry consolidation investing, which seeks to create value through the strategic use of acquisitions to accelerate business growth. Thoma Bravo currently manages approximately $4 billion of equity capital. The firm was founded in 1981 and has offices in Chicago and San Francisco (www.thomabravo.com).

“We have enjoyed a great working relationship with Thoma Bravo and the company has benefited from their guidance and insights,” said Douglas Smith, president, CEO and co-founder of Network Instruments. “Together we have continued to provide our networking IT customers with some of the top application and performance management solutions in the industry. The strategic partnership with Thoma Bravo has allowed us to take this next step in our growth and development and enabled us to continue delivering to our growing customer base.”

Kirkland & Ellis served as legal advisor and Credit Suisse served as financial advisor to Thoma Bravo.

© 2013 PEPD • Private Equity’s Leading News Magazine • 12-11-13

Stanford Study Dispels Private Equity Myths

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Private equity firms often get a bad rap in the popular media — picture Gordon Gekko in the 1980s movie Wall Street and, more recently, negative characterizations during the last presidential election — but new research by Stanford faculty member Shai Bernstein should dispel some of the myths about this class of investments.

“The public debate about private equity often lacks data upon which to base its arguments,” says Professor Bernstein, who is an assistant professor of finance at Stanford Graduate School of Business. “We wanted to take an in-depth look at the operations of these privately held firms, which are, more often than not, hidden from the public eye.”

After an analysis of private equity buyouts in the restaurant industry in Florida, which looked at 103 separate deals from 2002 to 2012 and 3,700 restaurant locations, Professor Bernstein and Harvard Business School faculty member Albert Sheen found strong evidence that private equity buyouts actually improved management practices and operations, as well as decreased prices, all with a minimal impact on employment.

While the study focuses on a single industry and geography, Professor Bernstein stipulates that the findings are indicative of the broader value created by private equity buyouts. As he explains, the restaurant industry has much in common with other sectors that attract private equity firms — they have tangible assets, relatively simple operations, and predictable cash flows. “We believe we can draw broader conclusions from these deals,” he says, although noting that some caution should be used in making generalizations.

The researchers decided to focus their efforts on restaurants because of the industry’s pervasive practice of dual ownership, in which a parent company directly owns and manages some locations and others are franchised. In general, a parent company has much less control over franchisees than locations that are directly owned. According to Professor Bernstein, this provided a uniquely controlled experiment about the value added by private equity firms, allowing the researchers to compare the effect of private equity ownership on direct-owned versus franchised locations.

In order to assess the extent of private equity influence, Bernstein and Sheen pored through health inspection data for the more than 50,000 restaurants in operation from 2002 to 2012, which gave them a back-stage view of restaurants’ operating practices. Their finding? Restaurants commit fewer critical health violations after being acquired by a private equity firm, and this effect increases steadily in the five years after a buyout.

“These operational practices matter,” says Professor Bernstein, who explains that critical health violations, such as improperly cooked food and poor hygienic practices, are strongly correlated with poor customer reviews on Yelp.com and the future likelihood of store closure. On the flip side, a reduction in such violations leads to an improvement in store revenue and a reduction in the number of foodborne illnesses.

How did the pair prove that such improvements were the result of private equity involvement, rather than an already expected business trajectory? That’s where the comparison between direct-owned versus franchised locations came in. Bernstein and Sheen found that improvements in health practices were concentrated in directly owned restaurants, in which private equity firms have the most influence. Interestingly, they also found evidence of spillover effects, as franchisees improved their own practices over time to compete more effectively with their better-managed, direct-owned counterparts.

“These kinds of systemic, operational improvements do not take place by happenstance,” observes Professor Bernstein. “They require coordinated improvements in training, monitoring, and employee incentives — all of which point to the conclusion that private equity ownership improves management practices across the organization.”

Meanwhile, Professor Bernstein says that these improvements in operational practices and food safety do not translate into higher prices for consumers. In fact, the team’s research shows that, compared to average prices for all restaurants, the average menu item is 29 cents cheaper at restaurants in the years after a private equity takeover, reflecting a 4.4 percent decline in overall menu prices. Entrees, the most expensive menu item, show the largest and most significant declines.

These price decreases aren’t the result of massive layoffs, either. “The popular press often chides private equity for eliminating jobs for debt service and short-term profits, but we found that the impact on employment is modest,” observes Professor Bernstein. They show that the average restaurant in a chain, both direct owned and franchised, has just one less full-time equivalent employee after a private equity buyout.

The research team has found additional evidence that private equity involvement leads to a decreased likelihood of restaurant closures. Given that the most prominent reason to close a restaurant is poor financial performance, they surmise that restaurants are more profitable following a private equity buyout, although additional research is needed to confirm their hypothesis.

“The Operational Consequences of Private Equity Buyouts: Evidence from the Restaurant Industry” is part of a series for the Rock Center for Corporate Governance, a joint initiative of Stanford Law School and Stanford Graduate School of Business. For a PDF copy of the study click HERE.

© 2013 PEPD • Private Equity’s Leading News Magazine • 12-11-13

VRC Names PJ Patel Co-Chief Executive Officer

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Valuation Research Corporation has named PJ Patel to the position of co-CEO. Mr. Patel will begin in his new position on January 1, 2014.

“PJ Patel’s outstanding technical skills, sterling reputation in the valuation industry, national contacts, and proven leadership put him in an excellent position to assume the co-CEO role,” said Neil Kelly, chairman of VRC.

Mr. Patel specializes in addressing sophisticated financial valuation reporting issues for private equity and corporate clients. In addition, he has excelled helping clients address tax and accounting valuation issues related to large multinational corporate acquisitions. He is a frequent presenter and serves on numerous industry panels and task forces on valuation issues.

Mr. Patel is a member of the Appraisal Issues Task Force, a voluntary group of professional appraisers who wish to improve the practice of valuation. The Task Force works with the FASB and the SEC to evaluate valuation proposals and recommend methodology, assumptions and approaches. He is also a member of the Appraisal Foundation’s Working Group that prepared the industry practice aid for valuing customer-related assets. He holds the designations of chartered financial analyst (CFA) and accredited senior appraiser (ASA).

Mark Brattebo, who served as co-CEO with William Hughes since 2001, will step down from day-to-day management, but will continue to serve his existing clients, assist with the transition and remain on VRC’s Board. Mr. Hughes will continue to serve with Mr. Patel as co-CEO.

“Mark Brattebo helped significantly grow our company from a financial and organizational perspective over his 12-year tenure as co-CEO. He also made numerous contributions mentoring employees and building lasting client relationships during his nearly 30 years with VRC,” said Mr. Kelly. “While his leadership will be missed, he has been a strong advocate for progressive leadership change at our organization. He felt the time was now for the transition given the strength of VRC’s platform and because there is a new generation of professionals who are well positioned to lead VRC. We are grateful for his continued involvement in our organization as a professional and board member.”

VRC furnishes expert and independent opinions of value for solvency, fairness, business enterprises, intangible assets, capital stock, equity interests, real estate, and fixed assets. VRC has provided valuations worldwide since 1975. VRC has locations in Boston, Chicago, Cincinnati, Milwaukee, New York, Pittsburgh, Princeton, San Francisco, and Tampa; as well as international affiliates in Argentina, Australia, Brazil, Canada, China, Germany, Luxembourg, Mexico, Portugal, Spain, and the United Kingdom (www.valuationresearch.com).

© 2013 PEPD • Private Equity’s Leading News Magazine • 12-11-13

Wynnchurch Adds Robert Burgess to Its Executive Advisory Board

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Wynnchurch Capital has announced that Robert Burgess, former chairman and CEO of Pulte Homes, has joined its Executive Advisory Board.

In addition to his positions as chairman and CEO of Pulte, other leadership positions Mr. Burgess held during his 19-year career at Pulte include senior vice president corporate development and president and COO. Under his leadership, Pulte became the largest US homebuilder and was named the #1 Quality Builder by J.D. Powers.

“The depth of Bob’s knowledge in the building products industry will greatly augment our efforts to expand our portfolio in this area,” said John Hatherly, founding partner, Wynnchurch.

Mr. Burgess serves on the boards of directors of Amerisure Companies, Mattamy Homes Limited, various private equity owned companies and numerous philanthropic boards, including Michigan State University Foundation. He was recently awarded the Distinguished Alumni Award from Michigan State University. Additionally, he serves on the boards of advisors for the Center for Global Entrepreneurship, Thunderbird School of Global Management and the Boys and Girls Clubs of Metropolitan Phoenix Foundation.

The Executive Advisory Board of Wynnchurch now has four members. In addition to Mr. Burgess, other members of the Executive Advisory Board include Dr. Tom Malone, Former Executive vice chairman of Milliken & Company; Joe Anderson, Former Chairman, CEO of TAG Holdings; and Jim Goodwin, former Chairman and CEO of UAL Corporation.

Wynnchurch Capital makes investments of $10 million to $90 million in middle-market companies that have revenues of $5 million to $500 million. Sectors of interest include niche manufacturing, transportation & logistics, business services, value-added distribution, energy and power services, general industrials, and metals & mining. Wynnchurch manages a number of private equity funds with capital under management in excess of $1 billion. The firm was founded in 1999 and is located in the Chicago suburb of Rosemont with additional offices in Detroit and Toronto (www.wynnchurch.com).

© 2013 PEPD • Private Equity’s Leading News Magazine • 12-11-13

Robbert Vorhoff and Amit Soni Promoted at General Atlantic

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General Atlantic has promoted Robbert Vorhoff to managing director and Aaron Goldman and Amit Soni to principal. Mr. Vorhoff is based in New York and leads General Atlantic’s global healthcare sector. Mr. Goldman and Mr. Soni are senior professionals in the firm’s New York and Mumbai offices, respectively.

“We are proud to have Robb as a managing director at GA. He is a highly talented professional who leads our investments in the healthcare sector, a dynamic industry in which we see high growth opportunities both here and abroad,” said William Ford, CEO of General Atlantic. “We are also pleased to promote Aaron Goldman, who has been an important contributor to GA in our financial services sector and Amit Soni, a key member of our India team based in our Mumbai office.”

Based in New York, Robbert Vorhoff is head of the firm’s global healthcare sector in which General Atlantic (GA) has invested nearly $2 billion to date. He currently serves as a member of the Board of Directors of MedExpress, a leading urgent care platform in the US, and Align Networks, a leading physical medicine network serving the workers compensation industry. Mr. Vorhoff also played an active role in the firm’s successful investments in NYSE Euronext, RiskMetrics Group, and Grupo Qualicorp in Brazil. Prior to joining GA in 2003, Mr. Vorhoff was with Greenhill Capital Partners, the merchant banking division of Greenhill & Co. He received a BS in Commerce with a concentration in Finance from the University of Virginia.

Aaron Goldman joined GA in 2007 and focuses on investments in the financial services sector. Mr. Goldman is closely involved with General Atlantic’s investments in Mu Sigma and Markit and played an active role in the General Atlantic’s investments in Sura Asset Management, First Republic Bank, Klarna, Pierpont Securities, Affinion, and Tory Burch. Prior to General Atlantic, Mr. Goldman spent five years with the growth equity arm of Fremont Group in San Francisco, where he made several investments in the Internet, communications and healthcare sectors and served as president and CFO of LPL Technologies. Before joining Fremont Group, he was an analyst in Donaldson, Lufkin and Jenrette’s Leveraged Finance Group. Mr. Goldman earned his BS in economics with a concentration in finance from The Wharton School, University of Pennsylvania and his MBA from Harvard Business School.

Amit Soni joined GA in 2008 and has worked in GA’s New York, London and India offices. He is based in the firm’s Mumbai office where he focuses on investments in internet & technology, and IT services sector. Mr. Soni is closely involved with GA’s investments in IBS Software and Mu Sigma. He has played an active role in GA’s investments in AND Designs, Kaspersky, MedExpress, Red Ventures, Hexaware and Infotech Enterprises. Prior to GA, Amit worked at 3i Plc’s India office and focused on investments in the automotive, media and oil & gas sectors. Mr. Soni earned his MBA from The Wharton School, University of Pennsylvania and his Bachelors of Technology in Electrical Engineering from Indian Institute of Technology, Delhi.

General Atlantic is focused on providing capital and strategic support to growth companies. The firm was founded in 1980 and manages approximately $18 billion in capital. General Atlantic has more than 90 investment professionals based in Greenwich, CT; Palo Alto, CA; London; Düsseldorf; Hong Kong; Beijing; Mumbai; and São Paulo (www.generalatlantic.com).

© 2013 PEPD • Private Equity’s Leading News Magazine • 12-11-13