Buyout Wrap: Turnarounds and Add-Ons Remain Popular –

Despite this year’s current lag in deal activity – roughly $8 billion thus far compared to $17.2 billion by mid-June of 2000 – GPs able to either provide or raise capital are pressing ahead by either focusing on turnarounds or by acquiring companies as add-ons to existing platforms.

For example, PNC Equity Management Corp. earlier this year took over 50% of Dun & Bradstreet’s Receivable Management Services (RMS) division for an undisclosed value in a management buyout. And PNC Equity Management structured, negotiated and raised the financing for the transaction, investing $21 million of its own capital alongside a significant investment from the RMS management team.

American Capital Strategies Ltd. scored two deals, one a buyout and one a privatization, and company COO Ira Wagner attributed both in part to his firm’s ability “to provide one-stop-shop capability to implement buyouts that might not otherwise close” due to the difficult credit market.

American Capital bought out Texstars Inc. from BBA US Holdings Inc. for $25.5 million. Texstars is a major supplier of canopies for the F-16 fighter aircraft, the most widely-used U.S. fighter aircraft. And the firm contributed $30 million in a $66 million transaction that took infrastructure redevelopment firm Roy F. Weston Inc. private.

Summer buying

Meanwhile, at least five acquisitions agreed to or closed over in the first two weeks of June were add-ons to platform companies already owned by buyout firms.

The richest deal was by Odyssey Investment Partners LLC, which added to its cache of aerospace companies with the acquisition of Champion Aviation Products from Federal Mogul Ignition Co. for $177.5 million. The acquisition was made through one of Odyssey’s portfolio companies, TransDigm Inc., a major manufacturer of aerospace component parts.

On the opposite end of the scale was American Securities Capital Partners. Through portfolio company Miltex Inc., the investment firm acquired the assets of the dental supplies business of Moyco Technologies Inc. for $17.5 million. Miltex is a major supplier of hand-held surgical and dental instruments, and Robert Perrett, Miltex president and CEO of Miltex, said the acquisition “significantly strengthens Miltex’s dental product line and market position.”

WideOpen West LLC, which is owned by Oak Hill Capital Partners, was founded in 1999 “to pursue the opportunities presented by the exploding demand for residential broadband Internet usage,” according to the company. So it wasn’t a stretch when the firm agreed to acquire the assets of Ameritech New Media for an undisclosed amount. Ameritech New Media is the cable television systems owned by SBC Communications Inc.’s Ameritech Corp. subsidiary, and operates under the brand name americast.

In the case of Alliant Resources Group Inc. (owned by GTCR Golder Rauner LLC), the purchase of Robert F. Driver Co. Inc. was the platform acquisition, in the insurance brokerage business.

And Chicago-based private equity investment firm Thoma Cressey Equity Partners (TCEP) added to its portfolio of marketing services businesses when it joined with major U.S. brand marketing firm, Lipson Alport Glass & Associates (LAGA), to buy back LAGA from HALO Industries Inc. for $25 million. Thoma Cressey already has investments in two other marketing services businesses: d/g* Worldwide (also known as Desgrippes Gobe Associates), and hybrid, a Dallas-based firm specializing in “digital strategy and design” for e-businesses.

“With global competition and the Internet, people have so many more choices, and brand marketing has become increasingly important over the last few years,” said Lee Mitchell, a partner at Thoma Cressey.

What’s In A Name?

Strong brand names are also proving vital to turnaround specialists, which continue to have a heyday snatching up ailing businesses that need restructuring. It is precisely their strong brand names, often combined with loyal customers, good management teams and/or infrastructure that make them attractive to GPs despite their financial woes.

Boca Raton-based Sun Capital Partners Inc., which invests in companies with the number one or two market position in their industries, acquired Miles Kimball Co., a mail order retailer of gift merchandise, in an undisclosed recapitalization with CIT Merchant Banking for the above reasons.

Similarly, Questor Management Co., which has invested in companies as diverse as Schwinn Cycling & Fitness Inc. and the consumer truck rental division of Ryder System Inc., invested $49 million in foundering, publicly-traded Carbide/Graphite Group.

Questor’s c-founder Jay Alix believes the company’s “future is bright.”

“Carbide/Graphite has excellent engineering, manufacturing and marketing capabilities, and has developed solid relationships with key customers around the world,” he said in a statement. Questor manages $1 billion of equity investment funds and specializes in providing capital for turnarounds and special situations.

While Questor found deal flow in the public markets, at least two other firms – a turnaround specialist and a new fund making its first investment – nabbed companies that have filed Chapter 11.

DIC Entertainment Holdings Inc. and ailing children’s book publisher Golden Books Family Entertainment Inc. have entered into an agreement whereby DIC and Bain Capital LLC, its private equity backer, will purchase substantially all of the assets of Golden Books as part of a $170 million deal.

Bain’s deal represents a turnaround opportunity of a strong brand name as well as a platform acquisition.

“We will continue to acquire other branded children’s assets that fit our strategic goals both domestically and internationally,” said Joe Pretlow, a managing director of Bain Capital, in a statement.

For its part, Cori Capital Partners LP (CCP) signed a letter of intent to close on its first deal, a data transmission play wherein it would acquire the remaining Latin American operations of PSINet Inc. in Brazil, Argentina, Mexico and Uruguay. PSINet, a major global provider of IP-based communications services for business, filed Chapter 11 earlier in the month, and is selling all of its non-U.S. American subsidiaries as part of its reorganization plan.

Contact Holly Werner at