Archives for 2019

Wind Point Closes 4th Pet Products Add-On

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Targeted PetCare, a portfolio company (formerly known as Pestell Pet Products) of Wind Point Partners, has acquired sWheat Scoop from Farmers Union Industries.

sWheat is a manufacturer of branded, 100% wheat-based, biodegradable cat litter products that are sold through both retailers and distributors.The company, led by General Manager Bob Larson, was founded in 1994 and is headquartered in Detroit Lakes, Minnesota.

In June 2018, Wind Point acquired Pestell Group in partnership with consumer packaged goods executive Matt Miller, from Don Pestell who founded the company in 1972. At that time, Pestell Group operated through two divisions – Pestell Minerals and Ingredients (PMI), a distributor of animal feed minerals and ingredients for a variety of livestock; and Pestell Pet Products (PET), a manufacturer of branded and private label cat litter and small animal bedding products. Both PMI and PET operated out of shared warehousing and manufacturing space near Toronto in New Hamburg, Ontario.

In August 2019, Wind Point split the operations of Pestell Group into two standalone entities, Pestell Nutrition, previously PMI, and Targeted PetCare, previously PET.

Targeted PetCare (TPC) is today a manufacturer of animal litter and bedding products, and co-manufacturer of dental pet treats, that are sold through the pet specialty, mass merchant, grocery, and club store channels. TPC is led by CEO Matt Miller and is headquartered in New Hamburg, Ontario and operates four manufacturing facilities across the US and Canada.

The buy of sWheat is complementary to TPC’s animal litter business, which manufactures branded and private label traditional clay-based litter, as well as alternative, paper-based litter. TPC will now be able to offer its customers wheat-based cat litter in addition to products from the broader TPC portfolio.

“sWheat is a perfect fit with TPC and the acquisition helps us continue our strategic vision of building a diversified pet products platform,” said Paul Peterson, a Wind Point managing director. “We believe the combination with TPC will serve as a catalyst for continued growth.”

The buy of sWheat is TPC’s fourth add-on acquisition under Wind Point’s ownership and follows the acquisitions of VersaPet, a Toronto-based manufacturer of private label and branded cat litter products (acquired in June 2019); Targeted Pet Treats, a Pennsylvania-based co-manufacturer of dental treats and chews for pets (acquired in December 2018);  and BPV Environmental, a Michigan-based manufacturer of paper-based animal litter and small animal bedding (acquired in October 2018).

Chicago-based Wind Point invests from $50 million to $100 million in companies with EBITDAs of at least $10 million. Industries of interest include business services, consumer products and industrial products. Wind Point is currently investing out of Wind Point Partners IX LP which began fundraising in 2019.

Farmers Union Industries, the seller of sWheat, is a family of companies including Performance Pet Products (pet food); Redwood Farms Meat Processors (pork processing); Midwest Grease (restaurant grease recycling); Central Bi-Products (animal rendering); Northland Choice (poultry-based pet food); Artex (maker of fertilizer spreaders); and sWheat (now sold to Targeted PetCare). Farmers Union, with approximately 600 employees, is led by CEO Dan Hildebrandt and is headquartered 115 miles west of Minneapolis in Redwood Falls, Minnesota.

Debt financing for the buy of sWheat was led by Antares Capital and Maranon Capital.

© 2019 Private Equity Professional | December 16, 2019

Audax Adds to Aspen Surgical

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Aspen Surgical Products, a portfolio company of Audax Private Equity, has acquired Protek Medical Products.

Protek is a manufacturer of single-use ultrasonic probe covers and needle guides used in tissue biopsies, fluid aspiration, and vascular access procedures as well as protective covers for medical instruments and equipment.

Protek is led by CEO Rick Pruter and is headquartered north of Iowa City in Coralville, Iowa.

Aspen Surgical is a manufacturer of branded and private label single-use surgical products including scalpels, blades, wound care, fluid control, and other surgical products. The company, led by CEO Jason Krieser, was founded in 1999 and operates three manufacturing facilities with approximately 500 employees in Caledonia, Michigan (headquarters); Las Piedras, Puerto Rico; and Agua Prieta, Mexico.

“Protek Medical has a long, successful history of providing effective, easy-to-use disposable products that help address cross-contamination issues in the clinical environment,” said Mr. Krieser. “This line is clearly synergistic with our current manufacturing and commercial operations and it supports our mission to provide high quality single-use medical devices that improve safety and efficiency for the healthcare settings that we serve.”

Audax acquired Aspen Surgical from Hillrom (NYSE: HRC) in July 2019 for $170 million. In December 2019, Aspen Surgical acquired Beatty Marketing & Sales, a provider of orthopedic products, including foam positioners, sterile positioning kits, and suture retrievers to hospitals and ambulatory surgery centers.

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, with offices in Boston, New York, and San Francisco, is currently investing out of its $3.5 billion, sixth private equity fund.

© 2020 Private Equity Professional | December 1, 2020

BDO Looks at 2020

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According to BDO’s inaugural U.S. Private Capital Outlook, preparations for a downturn are underway for the private equity and venture capital sectors, as more than half of fund managers say they are being more selective when evaluating highly valued transactions.

Ten-plus years into a bull market, 72% of private equity funds expect an economic downturn within two years. The venture capital industry is slightly more optimistic on timing, with just over half (56%) anticipating a downturn to hit within the next two years. However, that a bear market is coming is a foregone conclusion: 92% of private equity and 87% of venture capital respondents expect a downturn to occur within four years.

The survey also found that 30% of private equity respondents and 20% of venture capital respondents are looking to exit current investments. That percentage rises to 36% of private equity respondents and 21% of venture capital respondents among those anticipating a downturn to hit within two years.

“Expecting economic contraction has sent private equity and venture capital to the markets in droves as they look for liquidity to strengthen their stockpiles during a down economy,” said Scott Hendon, National Private Equity Industry Group Leader at BDO. “With funds chasing the same types of downturn-proof investments, competition has been unbridled, sending valuations to historic levels. Though we expect this trend to continue, we are seeing private capital funds deploying more creative ways to put their capital to use.”

Retreating to defensive strongholds and downturn-proof sectors
With downturn-proofing underpinning their strategies, both private equity and venture capital firms are on the lookout for investments with secular trends behind them and are relatively aligned on where the best opportunities can be found – technology, financial services, and natural resources.

But technology clearly reigns as the hottest sector, with 54% of private equity and 51% of venture capital managers identifying it as most likely to experience increasing transaction activity. Within technology, the areas of greatest interest for investment are 5G, artificial intelligence (AI), and the Internet of Things (IoT).

The BDO survey shows that the biggest drivers of deal flow are anticipated to be private company sales and capital raises (52% of private equity respondents and 42% of venture capital), public-to-private transactions (47% of private equity respondents and 39% of venture capital), and distressed businesses (40% of private equity respondents and 39% of venture capital).

Increasing competition from an evolving competitor set
Both private equity and venture capital respondents rank increased competition from other buyers as the most significant challenge to closing new deals (27% and 24%, respectively), followed by gaps between buyer and seller valuation expectations (21% and 23%, respectively).

Private equity respondents anticipate most of the competition over the next 12 months will come from strategic buyers (41%), with peer private equity firms ranking third (26%) behind hedge or mutual funds (36%). Meanwhile, venture capital professionals cite hedge or mutual funds (43%), strategic buyers (34%), and other venture capital firms (28%) as their top competition for deals.

Challenges and opportunities in geopolitical uncertainty
Amid ongoing trade turbulence, trade issues top the list of geopolitical concerns for both private equity (30%) and venture capital (21%), followed by concerns about the U.S. presidential administration (24% and 18%, respectively).

But trade tensions may be creating opportunity: For both private equity (30%) and venture capital (29%), Asia is the geographic region, aside from North America, that presents the greatest opportunity for new investment. The region replaces Continental Europe (16% for private equity, and 22% for venture capital), which had been first choice for private equity for the past two years at 45% in the prior survey, and 37% the year before that.

“Right now, Southeast Asia is one of the largest growing middle-class economies in the world. India, Indonesia, and the Philippines, though experiencing political struggles, represent strong opportunities to diversify away from China, and are attracting global investment,” said Lee Duran, Assurance Partner and a leader in BDO’s Private Equity and Venture Capital practice. “Greater interest in other emerging economies is becoming a reality given the U.S.-China trade war.”

Looking ahead to the U.S. presidential election, 51% of private equity professionals and 30% of venture capital executives surveyed say investor interest in private capital would increase under the policies of a Republican president. By contrast, 46% of private equity professionals and 37% of venture capital professionals surveyed indicate investor interest in private capital would increase under a Democrat president. However, both private equity and venture see greater returns under a Democrat in office: 34% of private equity and 29% of venture capital professionals surveyed expect exit multiples and the deal environment to improve under a Democrat, compared to 30% and 28%, respectively, under a Republican.

A rising baseline of digital expectation
Digital potential – the estimated bottom-line and top-line growth that can be achieved through digitization and digitalization strategies – has become increasingly critical investment criteria. All private equity firms surveyed classify long-term digital potential as “very important” or “moderately important” when making investment decisions, in contrast to the prior year’s survey when it was cited by only three-out-of-five firms.

Private equity respondents see the greatest opportunity for technology to accelerate value at the portfolio company level through cash flow management (20%), employee productivity (19%), and product/service innovation (17%).

To digitize their portfolio companies, more than half (52%) of private equity funds are adding leaders with digital expertise to the board or senior management. Another 39% are building digitization into value creation plans, slightly below that of their venture capital peers (42%). Just over a quarter (27%) of private equity respondents are pursuing complementary add-on investments, compared to 41% of venture capital respondents.

A cyberattack or data breach is still perceived as the greatest digital threat to portfolio companies by both private equity funds and venture capital funds (40% and 31%, respectively). In addition, 30% of private equity respondents and 36% of venture capital respondents report running into cybersecurity problems during the due diligence process more than half of the time.

Additional findings include
Top Regulatory Concerns: Private equity respondents cite the Tax Cuts and Jobs Act of 2017 as the greatest regulatory concern to their business, while venture capital respondents cite the Foreign Corrupt Practices Act as their greatest regulatory concern.

Top Challenges in the Sale Investment Process: Private equity fund managers rank credible budgeting and forecasting as their top challenge in a sale/investment process (21%). Venture capital fund managers, meanwhile, rank margin trends as their top challenge (22%).

The Rise of Co-investment: Limited partners have turned to co-investments and direct investments to increase their private market exposure, thereby reducing or eliminating management fees. In response to growing demand, 43% of private equity funds report offering co-investments to their limited partners, this year’s survey found.

BDO’s private equity practice assists private equity funds, portfolios, venture capital, mezzanine, and buyout firms throughout the fund cycle with all aspects of fund services, portfolio management and compliance, transaction advisory services and exit services.

BDO is a professional services firm providing assurance, tax, financial advisory and consulting services to a range of publicly traded and privately held companies. The firm serves clients through more 60 offices and more than 550 independent alliance firm locations nationwide.

The BDO US Private Capital Outlook (download the full survey findings HERE) is a survey of 200 fund managers at private equity and venture capital firms in the U.S. The survey was conducted by Rabin Research Company, a Chicago-based market research firm, in October 2019.

© 2019 Private Equity Professional | December 16, 2019

Arcline Carves Out Fairbanks Morse

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Arcline Investment Management has agreed to acquire the Fairbanks Morse division from EnPro Industries for $450 million. The valuation multiple for this transaction appears later in this article.

Fairbanks Morse manufactures heavy-duty, medium-speed reciprocating engines that are used in marine and power generation applications. The company’s engines are sold under the Fairbanks Morse and ALCO brand names. The company is the principal supplier of diesel engines to the US Navy, US Coast Guard and Canadian Coast Guard, with all manufacturing conducted in the company’s facility in Beloit, Wisconsin.

Fairbanks Morse has been an original equipment manufacturer of engines for more than 120 years and has a large installed base for which it supplies aftermarket parts and services through a network of five service centers located in the US and Canada. The company’s roots date back to 1823 but it began making engines in the 1890s that were used as backup power for windmills. Over the years, the company’s engines have been used in a wide range of applications from municipal, nuclear, and institutional facilities to locomotive engines, and naval and commercial-class ship propulsion and shipboard power.

According to EnPro, the sales price of $450 million is equal to approximately 10.5x Fairbanks Morse’s expected 2019 adjusted EBITDA.

“We are proud to invest in a company that is critical to our national interests. Our intent is to build upon and grow Fairbanks Morse’s 120+ year reputation of dependability, reliability and innovation in serving its long-standing customers,” said Arcline in a released statement.

Arcline makes control investments in companies that have from $10 million to $100 million of EBITDA and enterprise values of up to $1 billion. Sectors of interest include industrials, technology, life sciences, and specialty chemicals. The firm closed its first fund, Arcline Capital Partners LP, with $1.5 billion of committed capital in March 2019. Arcline was founded in September 2018 and has offices in San Francisco and New York.

“This transaction is a significant milestone in the continued evolution of our portfolio,” said Marvin Riley, chief executive officer of EnPro. “Fairbanks Morse, which constituted our Power Systems segment, is a premier provider of large, complex power systems, primarily serving the U.S. military. After thoughtful consideration, we determined that Fairbanks Morse would be better able to achieve its goals in an alternative setting. This transaction bolsters our already strong balance sheet and improves our flexibility to deploy capital towards businesses with characteristics that are more like EnPro’s core businesses.”

EnPro Industries (NYSE: NPO) is a provider of sealing products, metal polymer and filament wound bearings, components for reciprocating compressors, and diesel and dual-fuel engines. The company’s operating units include Fairbanks Morse, Compressor Products International, Garlock Sealing Technologies, GGB Bearing Technology, Technetics Group and STEMCO. EnPro was formed in 2002 when Goodrich Corporation (now UTC Aerospace Systems) spun off its engineered industrial products business into a new company. EnPro is headquartered in Charlotte, North Carolina.

Harris Williams and Moelis & Company were the financial advisors to Arcline in connection with this acquisition.

The sale of Fairbanks Morse to Arcline is expected to close by March 31, 2020.

© 2019 Private Equity Professional | December 13, 2019

CVF Buys Gary Platt Manufacturing

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CVF Capital Partners has acquired Gary Platt Manufacturing, a maker of seating used in the gaming industry, in partnership with the company’s management team.

Gary Platt’s products are used by casinos for their slots, table games, poker, bar-top, sportsbook, bingo, and hospitality seating needs. The company’s chairs are in virtually every casino in the US and its customers include International Game Technology, Bally, Aristocrat, WMS Gaming, Multimedia Games, Aruze and Konami.

The Reno, Nevada-based company, led by CEO Joe Esposito, was founded in 1996 on the concept that high quality, comfortable chairs would increase player’s “time on device” and as a result, casino revenues.

According to CVF Capital Partners, the casino and gaming industries have benefited from several recent legal changes and looks to be a growing sector. In May 2018, the U.S. Supreme Court ruled that the Professional and Amateur Sports Protection Act of 1992 was unconstitutional, freeing states to decide for themselves whether to legalize sports betting. As a result, residents in fourteen states are now able to place a legal sports wager, with more states expected to join them in 2020.

With expanding legalization has come new business opportunities through the expansion of sports betting. As a result, the commercial casino gaming sector logged its fourth consecutive year of gaming revenue growth in 2018 – rising nearly 3.5 percent to $41.7 billion, a new historic high. New commercial casinos opened in Colorado, Massachusetts, New Jersey and New York, and voters in Arkansas have approved a constitutional amendment, making it the 25th state to legalize commercial casino gaming (and the 41st state overall with legal casino gaming, including tribal casino operations).

“The changes in the U.S. gaming industry at the federal and state levels provide a great opportunity to invest in a rapidly growing segment where consumers are looking for new and innovative entertainment and hospitality options,” said Stefan Okhuysen, a principal at CVF Capital Partners.

CVF Capital Partners makes majority and minority equity investments of $3 million to $15 million in Western US-based companies that have revenues of $10 million to $100 million and at least $1 million of cash flow. Sectors of interest include business services, transportation and logistics, niche manufacturing, value-added distribution, food, beverage, and agriculture.

“The outlook for the casino and gaming industry is bright as more states introduce new gaming options including new casinos and sport betting venues,” said Mr. Esposito. “We look forward to the opportunity to partner with CVF in the years to go come. Their long experience in manufacturing and teaming up with management teams successfully will further help propel Gary Platt forward”.

CVF Capital Partners was founded in 2005 and is headquartered near Sacramento in Davis, California, with additional offices in Fresno and San Diego.

© 2019 Private Equity Professional | December 13, 2019

Wind Point’s Kleinfelder Adds On

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The Kleinfelder Group, a portfolio company of Wind Point Partners since November 2018, has acquired the geotechnical, environmental, and materials testing division of Advantage Engineers (Advantage G&E).

Advantage G&E provides its services to commercial and government clients in the Mid-Atlantic region, operating across the industrial real estate, transportation, energy, and utilities markets. Following the close of this transaction, Advantage G&E’s employees, including President Dan Schauble, will join the Kleinfelder organization.

“I am excited to join Kleinfelder,” said Mr. Schauble. “Their technical capabilities and national footprint will enhance and advance the exceptional geotechnical, environmental, and CoMET consulting services Advantage Engineers has provided for the last two decades.”

The Kleinfelder Group is an engineering, construction management, design and environmental professional services firm. The San Diego headquartered company was founded in 1961 by Jim Kleinfelder and has 60 office locations in the United States, Canada, and Australia.

With the addition of Advantage G&E, Kleinfelder is adding new office locations in Pennsylvania, New Jersey, and Maryland. “The Advantage G&E transaction brings additional capabilities to our Mid-Atlantic business and perfectly complements Kleinfelder’s operations as a whole,” said Louis Armstrong, Kleinfelder’s president and CEO. “With this buy, we now have a strong materials testing practice that seamlessly integrates with our existing geotechnical and environmental practices in the region.”

“Strategic acquisitions like this are a key part of Kleinfelder’s value creation plan, and we are thrilled to be partnering with the very talented and impressive team at Advantage G&E,” said Nathan Brown, a managing director at Wind Point.

The acquisition of Advantage G&E is the first add-on for Kleinfelder under Wind Point ownership. Kleinfelder continues to seek other engineering, environmental and professional services firms.

Chicago-based Wind Point invests from $50 million to $100 million in companies with EBITDAs of at least $10 million. Industries of interest include business services, consumer products and industrial products. Wind Point is currently investing out of Wind Point Partners IX LP which began fundraising in 2019.

Advantage Engineers is a provider of engineering and consulting services in the specialized areas of telecommunications, environmental, geotechnical, and construction materials testing. The company is headquartered near Baltimore in Columbia, Maryland.

© 2019 Private Equity Professional | December 13, 2019