Archives for August 2019

Party On?

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The protracted strong market for business sellers continues to be a party that shows no sign of winding down, according to GF Data’s report on private equity deal activity in the second quarter.

Two hundred private equity sponsors and other acquirers reported to the data tracking firm on 51 transactions completed in the $10 million to $250 million Total Enterprise Value (TEV) range.  Valuations for the quarter averaged 7.6x Trailing Twelve Months (TTM) Adjusted EBITDA. Debt utilization continued to both reflect and buoy strong valuations. Total Debt/EBITDA for the quarter averaged 4.2x, close to the quarterly high-water mark.

“While there is some fluctuation from quarter to quarter,” said GF Data’s CEO Andrew Greenberg, “valuations have remained stable on a fairly elevated plateau.  When we look at rolling two-quarter averages, the overall pricing multiple has hovered between 7.1x and 7.5x over the past six quarters. Two caveats should apply.  Valuations continue to be more robust on larger transactions and in some business categories, and the second quarter data obviously doesn’t reflect more recent market gyrations. By next quarter, we’ll see whether the bond market’s rate inversion was hiccup or harbinger.”

According to the firm’s report, the accommodating debt market appears to be playing an indispensable role in prolonging current conditions. “Debt utilization has enabled financial buyers to get some relief in capital structure, even as they maintain deal pricing,” said B. Graeme Frazier, IV, GF Data’s co-founder and principal. “The rolling two-quarter data shows average equity contribution receding to 47% after peaking at 54% in the second half of 2018.”

While debt usage overall remains aggressive, Mr. Frazier observed that an increasing share of business buyers are opting for more conservative capital structures.  “Acquirers utilizing leverage report to us on the extent of debt they employed.  The percentage of deals completed with debt “at or close to the maximum level available” peaked at 43% in 2016.  That figure had dropped to 35% in 2018 before ticking up to 37% in this year to date.”

Tim Clifford, the president and CEO of Abacus Finance, an active lender to the lower middle-market, provided this comment on the overall environment for deal activity. “The lower middle-market will be somewhat protected, but not immune to weaker deal activity during softer economic times — across all economic cycles entrepreneurs experience life events that lead to transactions. As market volatility rises resulting from concerns of rates, tariffs, and a looming recession, the importance of flexibility in the capital structure becomes paramount in helping support these businesses during a downturn.”

GF Data provides reliable external information for use in valuing and assessing M&A transactions to private equity firms, investors, lenders and other users.  The firm collects and publishes proprietary transaction information from private equity groups on a blind and confidential basis.  The pool of active contributors comprises 200 private equity firms, mezzanine groups and other financial sponsors. Data contributors and other subscribers receive five products: (1) a quarterly report containing high-level valuation, volume and leverage data; (2) a quarterly supplement offering detailed information on debt and capital structure trends; (3) a semi-annual supplement on indemnification cap, escrow and other details; (4) quarterly industry drilldown reports; and (5) continuous access, through GF Data’s secure website, to detailed valuation data organized by NAICS code.

For information on subscribing or on contributing data as a private equity participant, please contact Bob Wegbreit at [email protected] or 610-616-4607.

GF Data is based near Philadelphia in Conshohocken, PA (www.gfdata.com).

© 2019 Private Equity Professional | August 19, 2019

Audax Carves EIS from Genuine Parts

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Audax Private Equity has agreed to acquire EIS, the electrical specialties group of Motion Industries, from publicly traded Genuine Parts Company.

EIS is a distributor of process materials, production supplies, specialty wire and cable, and fabricated parts to more than 20,000 customers in the electrical OEM, motor, transformer, generator repair and assembly markets.

The company has more than 110,000 SKUs and operates 38 branches and 4 fabrication facilities. Atlanta-based EIS was acquired by Genuine Parts in June 1998 (www.eis-inc.com).

“We believe EIS is a quality organization with an experienced management team, loyal customer base, strong partnerships and a proven M&A platform that will complement our portfolio of industry-leading companies,” said Don Bramley, a managing director of Audax. “Audax will provide the expertise and resources to support the EIS leadership team as it continues to broaden its customer base, expand its offerings to adjacent markets and enhance service and support programs for the benefit of all EIS stakeholders.”

Genuine Parts Company (NYSE: GPC) is a distributor of automotive replacement parts in the US, Canada, Mexico, Australasia, France, the UK, Germany, Poland, the Netherlands and Belgium.  The company operates through three divisions: Automotive Parts, a distributor of more than 450,000 automotive replacement parts, accessory items and service items sold under the NAPA brand throughout North America, and under the Repco brand in Australia and New Zealand; Motion Industries, a distributor of more than 5.6 million industrial replacement parts and related supplies to more than 150,000 MRO and OEM customers throughout North America; and S.P. Richards Company, a distributor of more than 55,000 general office products to over 4,300 resellers and distributors throughout the US and Canada. Genuine Parts Company had total revenues in 2018 of more than $18 billion. The company was founded in 1925 and is led by CEO Paul Donahue (www.genpt.com).

“The sale of EIS represents the further streamlining of our operations and another step forward in our strategy to optimize our portfolio and strengthen our focus on sustainable, value-driving initiatives,” said Mr. Donahue. “Given Audax’s experience in leading industrial companies to their next stages of growth, I am confident that it is the right partner for EIS, and we look forward to working with Audax to ensure a smooth, successful transition for our employees, customers and supply base.”

Audax invests in middle-market companies that have from $8 million to $50 million in EBITDA and enterprise values of $50 million to $400 million. Sectors of interest include business and consumer services; energy; healthcare; technology, media and telecom; and industrials including chemicals, infrastructure and building materials. Audax has offices in Boston and San Francisco (www.audaxgroup.com).

J.P. Morgan is the financial advisor to Genuine Parts Company on this transaction.

The sale of EIS to Audax is expected to close by the end of September 2019.

© 2019 Private Equity Professional | August 16, 2019

Chemtron Switches Sponsors

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Kinderhook Industries has acquired Chemtron Corporation from CapitalWorks which acquired the company in November 2015.

Chemtron is a provider of hazardous and non-hazardous waste management services including blending, storage, recycling, transportation. The company operates two RCRA (the Resource Conservation and Recovery Act) treatment, storage and disposal facilities, two 10-day facilities, a non-hazardous waste processing facility, and a railcar and intermodal container processing facility.

Additional field and technical services include compliance training, testing, emergency response, demolition, plant closure, industrial cleaning and environmental consulting. Chemtron, led by CEO Rob Swords, was founded in 1964 and is headquartered near Cleveland in Avon, OH (www.chemtron-corp.com).

“We are thrilled to be partnering with Kinderhook who shares our vision for the future of Chemtron,” said Mr. Swords. “Chemtron will continue its legacy of providing best in class service to its customers with a focus on safety and compliance.”

“Chemtron represents an extremely unique set of assets in the sector,” said Rob Michalik, a managing director at Kinderhook. “The company’s diverse processing capabilities and ability to accept a wide range of waste streams is an enormous advantage in the marketplace as clients are increasingly focused on diversion and reuse of their waste.”

Joining the board of Chemtron are Kinderhook operating partners Brandon Velek, the chairman of CIRCON, a La Porte, TX-based provider of hazardous and non-hazardous waste management services and a portfolio company of Kinderhook; and Ken Wunderlich, the former CFO of Environmental Quality Company, a provider of waste treatment and disposal services which Kinderhook owned from 2008 to 2014.

Kinderhook makes control investments in companies with transaction values of $25 million to $150 million in which the firm can achieve financial, operational and growth improvements. The firm makes investments in non-core divisions of public companies, management buyouts of entrepreneurial-owned businesses, troubled situations, and existing small-capitalization companies lacking institutional support. Sectors of interest include healthcare services, environmental/business services, and automotive/light manufacturing. Kinderhook was founded in 2003 and is based in New York (www.kinderhook.com).

CapitalWorks, the seller of Chemtron, invests in companies with enterprise values of $15 million to $60 million, revenues of $15 million to $75 million, and EBITDA of $3 million to $9 million. Sectors of interest include niche manufacturing, value-added distribution, business services, aerospace and defense, and specialty chemicals. The firm was founded in 1999 and is headquartered in Cleveland (www.capitalworks.net).

Brown Gibbons Lang was the financial advisor to Chemtron and financing for this acquisition was provided by Comerica Bank.

© 2019 Private Equity Professional | August 16, 2019

Warren’s SIMCO Acquires Carolina Coatings

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Superior Industrial Maintenance Company (SIMCO), a portfolio company of Warren Equity since May 2018, has acquired Carolina Coatings Solutions and Industrial Services.

Carolina Coatings (CSS) is a provider of corrosion protection and surface cleaning services to the chemical, pulp and paper, power, and food and beverage industries throughout the Mid-Atlantic and Southeast. The company’s services include specialty coatings, abrasive blasting, pressure cleaning, water blasting, sponge blasting, crack injection, and concrete rehabilitation.

The company’s customers include, among others, Duke Energy, Du Pont, Celanese, Kellogg’s, Monsanto, International Paper, Nucor and Honeywell. CSS was founded in 1999 by President Ken McCraw and is headquartered near Raleigh in Morrisville, NC (www.carolinacoatingsolutions.com).

SIMCO provides application, inspection and maintenance services for industrial coating and linings; and lead and asbestos abatement. The company’s customers include power plants, chemical plants, commercial aviation facilities, military bases, food and beverage processing facilities, and water treatment facilities. SIMCO, led by CEO Hans Peterson, was founded in 1992 and has facilities in Concord, NC (headquarters) and Archdale, NC (www.gosuperior.net).

“We believe the addition of the Carolina Coatings team and service capabilities will greatly benefit the SIMCO platform,” said Scott Bruckmann, a partner at Warren Equity. “This acquisition is accretive to our goal of building SIMCO into a leading specialty industrial services provider throughout the Southeast.”

Warren Equity invests from $5 million to $40 million in North American-based companies that have from $3 million to $15 million of EBITDA and total enterprise value of less than $150 million. Sectors of interest include industrial, infrastructure, and business services. In January 2019, the firm closed its second fund at its $310 million hard cap. Warren Equity was founded in mid-2015 by Steven Wacaster, Scott Bruckmann, and Henrik Dahlback and is based in Jacksonville Beach, FL (www.warrenequity.com).

© 2019 Private Equity Professional | August 16, 2019

Vistria Expands St. Croix Hospice

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St. Croix Hospice, a portfolio company of The Vistria Group, has acquired Hometown Hospice & Homecare.

Hometown provides hospice care through three facilities in Brookfield, WI (headquarters); Fond du Lac, WI; and Mount Pleasant WI (www.hometownhh.com).

Hometown’s eastern Wisconsin facilities extend St. Croix’s reach in Wisconsin, allowing the company to provide its hospice services to a broader base of patients. “It is our mission to bring the highest quality care to patients and families throughout the Midwest,” said Heath Bartness, CEO of St. Croix Hospice. “We are thrilled at the opportunity to partner with a similarly high-performing, mission-driven organization which allows us to expand our services in eastern Wisconsin.”

St. Croix Hospice provides hospice care to more than 2,000 patients a day through a network of 27 office locations in Minnesota, Iowa, Wisconsin, Nebraska, and Kansas. The company, founded in 2008, has more than 800 employees and is headquartered near Minneapolis in Oakdale, MN (www.stcroixhospice.com).

“Hometown represents an exciting addition to the St. Croix family from each of a geographic, talent and clinical perspective,” added David Schuppan, a senior partner at The Vistria Group. “The St. Croix team strives to be industry leaders to all hospice stakeholders, and we’ve enjoyed the opportunity to work with them as they expand and enhance their geographic coverage and capabilities, respectively, throughout the region.”

The Vistria Group invests in middle-market companies that are active in the healthcare, education, and financial services industries. The firm is based in Chicago (www.vistria.com).

© 2019 Private Equity Professional | August 16, 2019

Spire Enters New CE Market with Add-On

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Surgent Professional Education, a portfolio company of Spire Capital Partners since December 2013, has acquired Pharmaceutical Education Consultants (PharmCon).

PharmCon, through its eCommerce brand FreeCE.com, is a provider of continuing education (CE) services to pharmacists, pharmacy technicians, and other healthcare professionals with tens of thousands of annual subscribers.

The company’s digitally delivered courses allow healthcare professionals to satisfy CE requirements and stay current on industry trends, including new drug development, disease management, and legal and ethical topics. PharmCon also provides a catalog of on-demand CE courses and, through its subsidiary, American Health Resources, hosts the Northeast Regional Hematology Oncology Pharmacists Symposium, a popular annual conference. PharmCon was founded in 1990 and is headquartered in Myrtle Beach, SC (www.FreeCE.com).

Surgent Professional Education is a provider of educational services within the accounting, auditing and taxation industries. Surgent serves more than 105,000 professionals in 50 states through its web-based learning and on-site educational products. Within the accounting industry, certified public accountants are generally required to complete 40 hours of accredited continuing professional education each year. Surgent, led by CEO Evan Kramer, was founded in 1985 and is headquartered near Philadelphia in Devon, PA (www.surgent.com).

It is expected that Surgent will expand and enhance PharmCon’s webinar products and build a series of exam prep courses for the pharmaceutical market. “PharmCon has a tremendous track record of growth and a stellar reputation among pharmacists and pharmacy technicians,” said Mr. Kramer. “We are beyond excited to continue building on PharmCon’s great foundation by leveraging Surgent’s technology platform and shared services architecture. We see tremendous opportunities to both expand within PharmCon’s current end markets and to enter additional segments of the healthcare industry.”

“We are thrilled to work with Surgent to take PharmCon to its next level of success. It’s clear to me that Surgent is the right partner to accelerate PharmCon’s growth given the talent and infrastructure that we can call on to accelerate the business going forward,” said Josh Chesner, the president of PharmCon.

Spire invests from $15 million to $50 million in companies with revenues of at least $10 million and EBITDAs of at least $3 million. Sectors of interest include technology-enabled business services, media, communications and education. Spire is based in New York (www.spirecapital.com).

© 2019 Private Equity Professional | August 15, 2019