Archives for October 6, 2020

Cotton Creek Capital Captures ConeCraft

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Cotton Creek Capital has acquired ConeCraft, a maker of equipment used in the pharmaceutical and biopharmaceutical industries.

ConeCraft specializes in manufacturing stainless steel bins, mixers, bioreactors, and tube management systems that are used for research and production in the biopharmaceutical market. The company sells its patented products to many of the largest biopharma companies in the world.

ConeCraft, founded in 2003 by CEO Jim Austin, has more than 120 employees and a 70,000 sq. ft. facility and headquarters in Fort Worth, Texas.

“ConeCraft was founded with the purpose of providing our customers with technically superior solutions, produced with tight manufacturing tolerances,” said Mr. Austin. “Cotton Creek’s relevant experience and operating approach were what our management team was seeking as we enter ConeCraft’s next phase of growth.”

“Jim, Sarah Schultz, and the rest of the management team at ConeCraft have built a differentiated business by providing highly-engineered solutions to end-users demanding stringent technical requirements,” said Antonio DiGesualdo, a managing partner of Cotton Creek. “In a market experiencing substantial organic growth, that has been further accelerated by the current pandemic, it is an ideal moment for our partnership with ConeCraft. We are excited to be a part of the ConeCraft team and execute on the substantial growth and expansion opportunities for the company.”

Cotton Creek’s investment in ConeCraft was made through its third fund, Cotton Creek Capital Partners III LP, which closed in August 2019 with $215 million in capital.

Austin-based Cotton Creek invests from $10 million to $40 million in companies with EBITDA between $5 million and $15 million. Sectors of interest include manufacturing, value-added distribution, industrial, specialty chemical, building products, food and beverage, and business services.

Private Equity Professional | October 6, 2020

Kohlberg to Acquire Parts Authority

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Kohlberg & Company has agreed to acquire a majority interest in Parts Authority, a distributor of automotive aftermarket parts, from The Jordan Company.

Parts Authority (PA) is a distributor of nearly 500,000 SKUs of automotive and truck parts, tools and equipment, and transmissions to the automotive aftermarket industry. PA’s customers include independent installers, national fleets, jobbers, and e-tailers.

PA has grown through both organic initiatives and acquisitions and in the past twelve years has acquired over a dozen companies. Today, the company has over 200 locations across the Northeast, Mid-Atlantic, Ohio, Georgia, Florida, Texas, Arizona, California, Utah, and the Pacific Northwest. PA was founded in 1972 and is headquartered on Long Island in Lake Success, New York.

The Jordan Company (TJC) will retain an equity position in the company and the PA management team, led by CEO Randy Buller, will continue to lead the company and remain as shareholders.

“TJC has been an excellent partner to Parts Authority over the past several years as we have continued to expand our footprint in the U.S. through new greenfield locations and acquisitions,” said Mr. Buller. “The entire Parts Authority staff is excited to partner with Kohlberg for this next phase as we look to continue expanding our business across the nation.”

“We are delighted to partner with Randy and the Parts Authority team,” said Evan Wildstein, a partner at Kohlberg. “The company has clearly established itself as a leading national distributor within the automotive aftermarket. We believe the company is well-positioned to continue on an accelerated growth trajectory through a highly successful organic and acquisition-driven strategy.”

Kohlberg & Company invests in companies in the industrial manufacturing; consumer products; business services; healthcare services; and financial services sectors. The firm concentrates on companies with EBITDA between $20 million and $100 million where it can invest between $50 million and $200 million of equity. In March 2018, Blackstone acquired a minority equity interest in the firm. Kohlberg & Company was founded in 1987 and is based north of New York City in Mt. Kisco, New York.

“Randy and the rest of the Parts Authority team have done a phenomenal job of turning the company into the distributor-of-choice in the automotive aftermarket parts industry,” said Ian Arons, a partner of TJC. “We are excited to continue investing alongside the Parts Authority team and look forward to working with the company and Kohlberg in this next stage of growth.”

The Jordan Company is a middle-market private equity firm that invests in a range of industries including industrials, transportation and logistics, healthcare, consumer, telecom, technology, and utilities. The firm was founded in 1982 and is headquartered in New York City with an additional office in Chicago.

Harris Williams was the financial advisor to Parts Authority while Stifel was the lead financial advisor to Kohlberg.

Private Equity Professional | October 6, 2020

New Mountain Closes Sale of Specialty Chemical Maker

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New Mountain Capital has sold Gelest to Mitsubishi Chemical America, the U.S. subsidiary of Mitsubishi Chemical.

Gelest is a maker of specialized organo-silicon compounds, metal-organic compounds, and silicone materials that are used in both commercial production, and research and development in the life sciences, medical materials, pharmaceutical, diagnostics and separation science, personal care, and semiconductor sectors.

Gelest, led by its founder and chairman Dr. Barry Arkles, and CEO Ken Gayer, has 240 employees and is headquartered near Philadelphia in Morrisville, Pennsylvania.

“New Mountain has been a terrific partner and helped us to significantly grow the company over the past three years. We now look forward to joining Mitsubishi Chemical where their capabilities and breadth will allow Gelest to create even more value for customers and opportunities for employees,” said Mr. Gayer.

New Mountain acquired Gelest in March 2017 in partnership with Mr. Arkles and its management team. During its ownership term, Gelest more than doubled its enterprise value by building its capabilities in the life sciences, medical device, and microelectronics end markets, both organically and through the June 2019 add-on acquisition of Bimax Chemicals, a Pennsylvania-based manufacturer of specialty monomers and polymers used to make contact lenses, personal care products, coatings and adhesives.

“Since partnering with Gelest in 2017, we have been extremely impressed by the management team and Gelest’s ability to innovate continuously to serve the evolving needs of its demanding customers,” said Andre Moura, a managing director at New Mountain. “We are proud to have supported Gelest’s execution of an organic and inorganic growth strategy, and we thank everyone at Gelest for an exceptional partnership.”

“We are extremely proud of the efforts of everyone who has contributed to making Gelest the company that it is today, with world-class technology and supply capabilities, made possible by the industry-leading team we have built and support from New Mountain for our strategic investment programs. This has made Gelest an extremely valuable partner to customers around the world,” added Dr. Arkles.

New Mountain is an industry generalist and seeks to acquire just three or four companies each year, typically in the $100 million to $1 billion enterprise value range, and generally invests $100 million to $500 million per transaction. In September 2017, the firm held an oversubscribed hard cap close of its fifth private equity fund, New Mountain Partners V LP, with $6.1 billion of capital. New Mountain was founded in 1999 and is headquartered in New York City.

Tokyo-based Mitsubishi Chemical is Japan’s largest chemical company and was formed through the 2017 merger of Mitsubishi Chemical Corporation, Mitsubishi Plastics, and Mitsubishi Rayon Co. The company’s US subsidiary is headquartered in New York City and is led by President Steve Yurich.

The sale of Gelest to Mitsubishi Chemical was announced in May 2020 and just recently received all its regulatory approvals.

Private Equity Professional | October 6, 2020

BDO Sees Stronger 2021

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BDO has just published its U.S. Private Capital Pulse Fall 2020 Survey which finds that even as they prepare for a second wave of the coronavirus, three-quarters of private equity firms expect the economy to turn around in 2021.

Three-quarters of all fund managers surveyed expect the economy to improve next year—28% expect it to be “much better” and nearly 47% “slightly better.” 

Only 15% of private equity and venture capital fund managers surveyed said they expect the economy to perform worse in 2021, and the remainder, 10%, said the economy would fare about the same.

“With the road to recovery shrouded in uncertainty, deal makers are grappling with an unfamiliar landscape,” said Scott Hendon, the national leader of private equity at BDO. “Deal flow will remain comparatively muted for the balance of 2020, but, in line with industry expectations, we believe M&A will pick up as the economy turns around in 2021.”

While transaction activity during the balance of 2020 likely will not catch up to the deal flow seen in 2019, transactions are picking up steam. Nearly half of survey respondents expect private company sales and capital raises to drive deal flow over the next six months with other key drivers including public-to-private transactions (39%), succession planning (37%), exiting current investments (34%) and corporate divestitures (32%).

Last winter, BDO reported that 40% of fund managers saw distressed business deals as a key driver of deal flow, up from 4% the previous year. Now, 46% of fund managers believe investing in distressed businesses will be a key driver of deal flow with acceleration through the end of the year and into 2021 as businesses that are still experiencing disruption deplete their coronavirus federal relief loans.

“Private capital outperformed the public markets during the recovery from the Great Recession, but the asset class was slow to make new acquisitions and missed on the returns that would have come from buying quality assets at a steep discount. If they are looking for an opportunity to correct the so-called sins of the past, now is the time,” said Jim Loughlin, BDO’s business restructuring and turnaround services national leader.

Is a second wave of the pandemic on its way? Yes, according to BDO. Almost 95% of respondents say they are preparing for a second wave of the pandemic and are taking action by conducting business continuity risk assessments (55%), making changes in forward-looking valuation metrics (47%), activating a crisis response task force (39%), considering applying for a government loan (36%), and assessing EBITDA for asset impairments (32%). Just under 5% of respondents say they are not doing anything to prepare for a second wave.

Valuing assets by modeling future cash flows and revenue streams is always an uncertain process but especially so during a global pandemic. According to the BDO survey, more than 77% of private equity managers believe assets today will be valued from 10% to 20% lower than they would have pre-COVID-19. These price dislocations will provide opportunities for higher returns but may require longer holding periods.

“The impact of the COVID-19 pandemic and election season uncertainty have changed the landscape of exit activity. Rather than private-to-private trades between fund sponsors, we are seeing more exits from companies accessing the public markets—that includes private equity shops that before the pandemic may not have considered IPOs as viable exit strategies,” said Kevin Bianchi, BDO’s asset management industry group co-leader. “The IPO pipeline is building, which is perhaps an unexpected outcome of the crisis, and may offset other investment and financing strategies.”

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 65 offices and more than 740 independent alliance firm locations nationwide.

BDO’s Private Capital Pulse Fall 2020 Survey (download the PDF report HERE) is a survey of 100 private equity fund managers and 100 venture capital fund managers at firms in the United States. The survey was conducted by Rabin Research Company, an independent marketing research firm, in August 2020.

Private Equity Professional | October 6, 2020