Archives for August 20, 2020

Arlington Sells Centauri at Big Multiple

by

Arlington Capital Partners has agreed to sell Centauri to publicly traded KBR for $827 million in cash.

Centauri is a provider of engineering, intelligence, cybersecurity and advanced technology to intelligence and national defense agencies for applications on land, air, sea, space, and cyberspace. The company specializes in outer space and directed energy applications.

Centauri was formed by ACP in April 2019 to consolidate its national security investments in Integrity Applications (acquired in February 2018), Dependable Global Solutions (acquired in July 2018), and Xebec Global (acquired in October 2017).

Centauri, led by CEO David Dzaran and headquartered in Chantilly, Virginia, has just more than 1,750 employees and 22 offices across in Virginia, California, Hawaii, Ohio, Michigan, Pennsylvania, Massachusetts, and Maryland.

“Arlington’s bold vision for Centauri’s future is what led us to partner with them, and it is fulfilling to have seen that strategy realized,” said Mr. Dzaran. “Our partnership with Arlington has produced outstanding growth for Centauri and we are equally as excited for the next chapter with KBR, where our combined capabilities will allow us to advance our solutions to the next level.”

KBR (formerly Kellogg Brown & Root) is an engineering, procurement, and construction company and a former subsidiary of Halliburton (it was spun out as a public company in 2006). The company provides professional services and technologies to the government, defense, space, aviation, energy, and specialty chemicals sectors. KBR has performed under numerous contracts with the US military during World War II, the Vietnam War, and the Iraq War. KBR, led by CEO Stuart Bradie, was founded in 1901 and is headquartered in Houston.

KBR has announced that it expects Centauri to have 2021 revenues of more than $700 million and EBITDA of more than $70 million. This yields an 11.8x proforma EBITDA valuation multiple.

“During our partnership, Centauri achieved dramatic growth and, through unique subject matter expertise along with aggressive investments in technology, solidified its role as a strategic asset to the national security community,” said David Wodlinger, a partner at Arlington Capital. “Centauri was purpose-built to solve the most complicated space and directed energy challenges faced by our country, a strategy that will only be enhanced by KBR’s scale, strong management team and shared focus on quality and culture.”

“Centauri’s world-renowned technical talent, specialized mission expertise and advanced R&D labs are a powerful combination that underlies its enduring market advantage,” said Ben Ramundo, a vice president at Arlington Capital. “With continued investment behind those strengths as a result of joining KBR, Centauri’s brightest days are still ahead.”

Arlington Capital was founded in 1999 and has completed over 90 acquisitions since its inception. Areas of interest include government-regulated industries and adjacent markets including aerospace & defense; government services; and technology, healthcare, and business services. Arlington Capital, based in Chevy Chase, Maryland, is currently investing out of Arlington Capital Partners V LP, a $1.7 billion fund that closed in June 2019.

Jefferies was the financial advisor to Centauri and Citizens Capital Markets advised KBR.

Private Equity Professional | August 20, 2020

Roark Looks to Clean Up in Facilities Services

by

Roark Capital has made an investment in Divisions Maintenance Group, a technology and data-based provider of facilities maintenance services.

Divisions Maintenance Group (DMG) services retail chains, pharmacies, grocery stores, warehouses, distribution centers, and REITs across more than 46,000 locations in all 50 states. DMG’s network of independent service providers – totaling more than 5,700 – provide hundreds of services including building painting and repair, equipment assembly, electrical maintenance and repair, floor care, glass cleaning and repair, janitorial and sanitization, landscaping, elevator repair, security, and snow removal.

DMG, led by CEO Gary Mitchell and CSO Kyle Murray, was founded in 1999 and is headquartered near Cincinnati in Newport, Kentucky.

“We are delighted to partner with Roark,” said Mr. Mitchell. “The transaction process was seamless; the Roark team did exactly what they said they would do every step of the way, and their operational expertise, great culture, and deep need-based multi-unit services experience will help us further accelerate our growth.”

“DMG’s customer-first focus, leading technology platform, and dedication to its core principles drives unmatched quality and service delivery. We are thrilled to partner with Gary and Kyle,” said Mike Thompson, a managing director at Roark.

Roark Capital Group invests in companies that have revenues from $20 million to $5 billion and EBITDA from $10 million to $500 million. Sectors of interest include franchised and multi-unit business models in the retail, restaurant, and service sectors; consumer products; consumer and business services; and environmental services. Roark is headquartered in Atlanta with an additional office in New York City.

In November 2018, Roark completed fundraising for its two newest funds, Roark Capital Partners V LP and Roark Capital Partners II Sidecar LP, with a total of $6.5 billion of capital commitments.

The buy of DMG is Roark’s 42nd platform investment and its 12th business services platform investment since its founding in 2001.

Private Equity Professional | August 20, 2020

Camano and Tonka Bay Partner Up

by

Camano Capital and Tonka Bay Equity Partners have partnered up to invest in E-Cloth, a maker of microfiber cleaning products.

E-Cloth produces a line of environmentally conscious microfiber cleaning products – designed to clean using just water and no harsh chemicals – that are sold through the direct-to-consumer, e-commerce, and retail channels. The company was founded in 1995 in the UK before expanding into the US in recent years.

E-Cloth, led by CEO Jamey Bennett, has offices in Boston, Massachusetts and Royal Tunbridge Wells, UK (50 miles southeast of London) and a newly-opened distribution center in Dover, New Hampshire.

“Our team has built a brand in a market segment where consumers who value sustainable products are underserved are poised for further expansion in e-commerce and retail channels, and look forward to working with Camano and Tonka Bay to execute on our growth strategy,” said Mr. Bennett.

“Jamey and the E-Cloth team have built an impressive business that is focused on truly sustainable cleaning products,” said Steve Soderling, a partner at Tonka Bay. “We are excited to support the team in its next stage of growth and continue its market expansion both online and via retail channels. We are also pleased to be partnering with the Camano team as we assist E-Cloth with its next phase of growth.”

Seattle-headquartered Camano Capital invests in lower middle-market consumer companies that have EBITDA from $500,000 to $5 million. The firm has additional offices in Phoenix and Minneapolis.

“E-Cloth has become a leader in innovative cleaning solutions,” said Tom Newell, a partner at Camano Capital. “We look forward to working with Jamey and the team to grow the company in this new and important segment of the cleaning products world. Our team is also excited about the partnership with Tonka Bay and their deep experience building bigger, better businesses.”

Tonka Bay invests in companies that have between $20 million and $50 million of revenue and EBITDA between $2 million and $8 million. Sectors of interest include highly-engineered manufacturing, value-added distribution, and business services. The firm was founded in 1998 and is based in the Minneapolis suburb of Minnetonka. Earlier this month, Tonka Bay closed its fourth fund, Bayview Capital Partners IV LP, with $200 million of capital.

Private Equity Professional | August 20, 2020

Do Reps and Warranties Insurers Pay Claims?

by

Law firm Lowenstein Sandler has just published a report, Getting Paid: A Look at Representations & Warranties Insurance, that explores whether insurances companies actually pay reps and warranties (R&W) claims.

According to Lowenstein Sandler the answer is “yes” – with some important caveats. Eighty-seven percent of respondents said at least a partial payment was negotiated for all R&W claims that exceeded the self-insured retention amount. But more than two-thirds of respondents said that all claims fall within retention – and therefore do not result in payment by insurers.

The report was authored by Lynda Bennett, partner and chair of Lowenstein’s insurance recovery group, and Eric Jesse, counsel in the group.

“R&W insurance has become increasingly popular in recent years, but little was known about insurers’ claim payment histories,” said Ms. Bennett. “This survey tells us that policyholders should promptly make their claims, they shouldn’t fear negotiating with R&W insurers for better terms, they should rely on expert claims advocacy teams, and–maybe most importantly–they shouldn’t take ‘no’ for an answer.”

The survey also uncovered other important takeaways about the discovery, and submission, of claims, how claims break down by industry and nature, and other broad trends in the claims handling process as follows:

  • A plurality (41 percent) of respondents said three to six months pass between the discovery of a breach and the reporting of a claim to an R&W insurer. Seventy-six percent of respondents said it takes between 3 and 12 months after that for an insurer to provide its coverage position, and 71 percent said it takes 6 to 18 months after the claim is submitted for payment to be received.
  • The financial services industry has far and away the largest number of R&W insurance claims, according to respondents (72 percent). Next were technology (29 percent) and healthcare (28 percent).
  • A majority of claims stem from deals with seller indemnification, as sellers have recognized that they have skin in the game where R&W insurers have subrogation rights against sellers in the event of fraud.
  • Financial statements form the foundation for most claims reported (55 percent). This is likely because buyers often “dig in” to acquired companies’ financial statements and records soon after a purchase.

Lowenstein Sandler is a national law firm that is active in virtually every sector of the global economy, with particular emphasis on investment funds, life sciences, and technology. The firm has over 350 lawyers based in New York, California, New Jersey, Utah, and Washington DC.

The survey, conducted in 2020, gathered input from 149 executives involved in the R&W insurance market including buyers (private equity funds, investment banks, and operating companies) and sellers (insurance companies and insurance brokers).

To download a copy of Getting Paid: A Look at Representations & Warranties Insurance, click HERE.

Private Equity Professional | August 20, 2020