Executing a Corporate Carveout


Company

Industry

Alemite Holdings, LP

Industrials

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Executing a Corporate Carveout


Company: Alemite Holdings, LP

Position: Industrials

Location: Charlotte, North Carolina

Date of Investment: June 2002

Exit Date: January 2006


Company Description
Alemite was founded in 1919 and became the leading global supplier of industrial lubrication equipment and components, including grease fittings, grease guns, pumps, reels, and related automated lubrication systems. In the early 1920s, Alemite invented the hydraulic grease fitting, and established itself as the leading provider of lubrication products to industrial manufacturers and automotive repair centers.

Background
Alemite was owned by Invensys plc, a British multinational conglomerate. During the 2001-2002 recession, Invensys, then highly leveraged, encountered financial difficulties and decided to divest certain non-core businesses, including Alemite. Sentinel was introduced to the transaction by a boutique M&A advisory firm that had been retained by Invensys to sell Alemite.

After a limited auction process, Sentinel was selected based on our long-standing relationship of trust with the principals of the M&A boutique and our ability to provide Invensys with certainty to close in the midst of a recession where the economic outlook following the attacks of 9/11 remained quite uncertain.

The Opportunity

  • To acquire an established 80-year-old industrial lubrication equipment brand

  • To invest in a platform business with a long history of profitability and sustainable operating economics

  • To partner with Alemite's committed and highly experienced management team who co-invested alongside Sentinel

 

Accomplishments
Smooth Transition to a Fully Standalone Business: Together with management, Sentinel helped implement a standalone IT and financial accounting system and put in place significant equity and pay-for-performance incentives to promote an entrepreneurial culture.

Revitalized Product Development: Sentinel worked closely with management to revitalize new product development, which had been curtailed under prior ownership in order to maximize cash flow.

Entered New Markets: Alemite's management drove sales growth through entering complementary end markets with new, innovative products.

Outcome
Under Sentinel's ownship, Alemite's profitability grew significantly. In 2005, Sentinel received an unsolicited approach from a private equity firm that owned Lincoln Industrial Corporation, another industrial lubrication equipment supplier. We concluded that the timing was opportune to sell Alemite because market conditions for selling businesses were robust and Sentinel had achieved its investment objectives. In January 2006, Alemite was sold to Lincoln to create a global category leader, in a highly successful transaction for Sentinel and management.

Fasloc, Inc.

Industrials

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Executing a Corporate Carveout


Company: Fasloc, Inc.

Position: Industrials

Location: Martinsburg, West Virginia

Date of Investment: October 2005

Exit Date: January 2007


Company Description
Fasloc is a leading manufacturer of specialized underground mine roof support systems. Key products are polyester resin cartridges that permanently secure roof support bolts used to create stable and secure roofs in underground coal mines.

Background
Fasloc was started and owned by DuPont, who originally developed Fasloc's products to complement its mine explosives business. DuPont handled the sale internally and had no advisor represent them in the sale.

Two challenges faced DuPont as a seller. First, Fasloc was not a standalone business: it was a manufacturing plant with key support functions (including finance, IT, and human resources) handled by DuPont. Second, Fasloc senior management were long-time DuPont employees who were initially disappointed about the prospect of their business being sold, and were concerned about losing DuPont's "gold plated" healthcare and retirement benefits for which they had worked many years to be eligible. To address these challenges, (i) one of Sentinel's executives functioned as temporary CFO and worked closely with management to oversee installation of the systems necessary to establish the business as a standalone entity; and (ii) we provided Fasloc’s employees with comprehensive health and retirement benefits similar to those provided by DuPont.

DuPont selected Sentinel based on (i) our undertaking to provide Fasloc's employees with comprehensive DuPont-like benefits; (ii) Sentinel's commitment to a fast-track closing within 45 days of signing a letter of intent; and (iii) our willingness to take on the challenges of making Fasloc a standalone business.

The Opportunity

  • To acquire the leading industry brand and established leader in a growing niche market fueled by a favorable growth outlook for the coal industry

  • To invest in a platform business with a long history of profitability, a high return on net invested capital, and attractive free cash flow

  • To partner with Fasloc's committed and highly experienced management team who co-invested alongside Sentinel

 

Accomplishments
Smooth Transition to a Fully Standalone Business: Within 90 days, working closely with management, we implemented a new IT system, significantly professionalized the accounting function, put in place significant equity and pay-for-performance incentives to promote an entrepreneurial culture, and hired a new CFO.

Jump-Started Sales and Profit Growth: Shortly after the closing, Sentinel and management initiated a successful program to jump-start sales, which in turn fueled profit growth.

Outcome
DYWIDAG-Systems International, a leading European mining and tunneling systems manufacturer, made an unsolicited approach to buy the business. DYWIDAG had important strategic reasons for wanting to own Fasloc and was willing to pay a preemptive price. In consultation with management, Sentinel agreed to a sale in a highly successful transaction for Sentinel and management.

IEP Technologies, LLC

Industrials

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Executing a Corporate Carveout


Company: IEP Technologies, LLC

Position: Industrials

Location: Marlborough, Massachusetts

Date of Investment: July 2013

Exit Date: September 2015


Company Description
IEP Technologies is the leading global provider of explosion protection systems and services, with operations in the U.S., Germany, Switzerland, France, Turkey, and the U.K. IEP offers the industry's leading array of industrial explosion systems, design engineering, replacement parts, material testing, and service and support to its global customers around the world.

Background
At the time of our purchase, IEP consisted of three legacy brands, Fenwal, Kidde, and Incom, which have been sold in the U.S. and Europe since the 1950s. These legacy brands comprised five separate businesses that were owned by United Technologies Corp. ("UTC"), but were not integrated into one, unified company. UTC decided to divest IEP because it was a non-core asset and hired a boutique investment bank with which Sentinel has a strong relationship to advise it on the transaction.

Key functions including operations, finance, IT, insurance, and benefits were handled centrally by UTC, leaving IEP unable to operate as a standalone business. IEP operated out of UTC facilities in the U.S., Germany, and the U.K. and needed to establish its own facilities. In addition, as part of the transaction, UTC planned to retain the Fenwal and Kidde brands, which necessitated the creation of a new, unified global brand. UTC faced the challenge of needing to select a buyer who could create a standalone business from the assets it was selling. Importantly, all of this needed to be accomplished without causing any disruption to IEP and its global customer base.

UTC ultimately selected Sentinel based on (i) our established record of closing complex carveout transactions and willingness to take on the challenges of making IEP a standalone business; and (ii) the fact that we were management's preferred partner

The Opportunity

  • To acquire the global leader in a growing industrial niche with a favorable outlook, driven by increasing regulation and stronger enforcement

  • To invest in a platform with a long history of profitability, a high return on invested capital, and attractive free cash flow

  • To partner with IEP's committed and highly experienced senior management team, who now had the opportunity to run a standalone business

 

Accomplishments
Smooth Transition to a Fully Standalone Business: Within nine months of the closing, working closely with management, we recruited a talented CFO, promoted a highly experienced manager from the U.K. as head of European operations, introduced the new global "IEP Technologies" brand, relocated to new facilities in three countries, and implemented a new worldwide IT system, all with little or no disruption to its business.

Positioned the Business for Growth: Once the carve out from UTC had been completed, Sentinel worked closely with management to develop its first global, consolidated strategic growth plan that included (i) making strategic add-on acquisitions, (ii) expanding into new product lines, (iii) penetrating emerging growth markets, and (iv) developing innovative outbound, demand-generation marketing campaigns not previously utilized in the industry.

Outcome
Following a successful transition to a standalone business, and having positioned the business for its next stage of growth, IEP was sold in September 2015 to HOERBIGER Group, a leading European provider of compression technology, drive technology, and hydraulics, in a highly successful transaction for both Sentinel and IEP's management team.

Power Products, LLC

Industrials

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Executing a Corporate Carveout


Company: Power Products, LLC

Position: Industrials

Location: Menomonee Falls, Wisconsin

Date of Investment: December 2013

Exit Date: December 2016


Company Description
Power Products is a global electrical products supplier that designs, manufactures, and distributes branded electrical tools, components, and power conversion solutions. Power Products primarily serves the construction and remodeling, marine and recreation, and industrial end-markets. Power Products owns a broad portfolio of recognized brand names including Blue Sea Systems, Del City, Gardner Bender, Lenco, Marinco, Mastervolt, and ProMariner.

Background
In June 2013, publicly-traded Actuant Corporation, a $1.3 billion diversified industrial company, announced plans to divest its Actuant Electrical division and hired a middle-market investment bank to manage the sale. Sentinel was selected because of our established record closing complex industrial carveouts, our longstanding relationship with the investment bank managing the sale, and because we were management’s preferred partner. At closing, Sentinel and management renamed the business Power Products.

The Opportunity

To partner with a talented and committed management team; to firmly establish and restructure Power Products as a standalone business; and to further optimize and grow its portfolio of market-leading brands and pursue add-on acquisitions.

Accomplishments
Restructured and Refocused Business by Divesting or Winding Down Noncore Divisions: At the time of Sentinel’s investment, Power Products operated seven separate businesses. Three of these we identified as noncore and candidates for divestment. In the 15 months following the closing, Power Products completed the sale of two noncore divisions to a publicly-traded strategic buyer and restructured its money-losing Solar division. These actions streamlined Power Products, improved its financial profile, and allowed management to focus on its core product offering.

Built Leading Marine Platform Through Acquisition: Having dramatically reduced its complexity, Power Products completed three highly strategic add-on acquisitions. At the outset, we targeted the marine market as a logical area for consolidation. Over the next several years, Power Products acquired Blue Sea Systems, Lenco Marine, and ProMariner, each of which is the leader in its marine market segment. Collectively, these acquisitions doubled the size of Power Products’ electrical marine business.

Enhanced Management Team: Shortly after closing, Sentinel recruited a CFO, rehired the former president of Power Products’ Gardner Bender division, and transitioned the president of a noncore division to lead Power Products’ Global Marine, Mobile, and Industrial business. These organizational changes strengthened Power Products’ deep bench of management talent and helped jumpstart growth. Sentinel also implemented an option and co-investment program that provided our management partners, who had previously been working deep within a large public corporation, with significant equity upside and aligned our interests.

Outcome
During our three-year ownership, Power Products successfully transitioned to a standalone business, streamlined its portfolio of leading brands, and became a platform for acquisitions. With revenue, EBITDA, and cash flow growing significantly, Power Products exceeded the objectives we established at the outset of our investment. In December 2016, Power Products was sold to another private equity firm in a management buyout transaction.

Southern California Pizza Co., LLC

Food / Restaurants; Franchising

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Executing a Corporate Carveout


Company: Southern California Pizza Co., LLC

Position: Food / Restaurants; Franchising

Location: Corona, California

Date of Investment: August 2008

Exit Date: December 2012


Company Description
Southern California Pizza Company (“SoCal Pizza”) is the largest Pizza Hut franchisee in California and the third largest in the United States. At the time of our exit, SoCal Pizza operated 221 Pizza Huts in the greater Los Angeles metro area.

Background
As part of a refranchising program to reduce the number of company-owned units, Pizza Hut, a subsidiary of Yum! Brands, decided to divest 123 units in the Los Angeles market. While store-level personnel were included with the sale, no executive management was included. To qualify as a bidder, Pizza Hut required potential buyers to have proven QSR experience, an approved senior management team, and an in-place IT infrastructure capable of handling one of the largest franchisees in its system.

Recognizing an opportunity to acquire units with a strong brand in a tier-one market, we recruited as CEO a seasoned restaurant executive who had a long record of success operating and optimizing QSR units for Pizza Hut and other franchise systems. Together with our new CEO partner, we set out to build the necessary infrastructure for the platform to support future growth. After a complex and lengthy sale process, Pizza Hut selected Sentinel as the winning bidder. At closing, we had already executed the following initiatives to enable SoCal Pizza to operate successfully post-carveout:

  • Recruited an entire senior executive team

  • Rebuilt a full support team to manage the finance, marketing, and human resources functions

  • Implemented a brand new IT infrastructure

  • Established new insurance, benefits, and other necessary programs

 

The Opportunity

  • To acquire stable but underperforming QSR units of a prominent brand in a growing category

  • To invest in a solid business that could serve as a platform for future acquisitions

  • To partner with an experienced and highly motivated management team

 

Accomplishments
Smooth Transition to a Fully Standalone Business: Because we had recruited a new management team and built a complete infrastructure prior to closing, SoCal Pizza was able to fully function from day one without business or customer disruption.

Secured Cost Improvements: SoCal Pizza's new management team was able to achieve significant and permanent store-level cost improvements within several months of closing.

Acquired Additional Units to Build Scale: After the initial closing, Sentinel learned that Pizza Hut was considering divesting an additional contiguous 98 Pizza Hut units in the greater Los Angeles market. Based on the credibility we established in building the infrastructure for SoCal Pizza to stand alone and the early attractive results we generated, Pizza Hut agreed to sell us the 98 stores, and in August 2009, SoCal Pizza completed the acquisition.

Outcome
Following the successful carveout from a major corporation, a seamless transition to a standalone business, and a subsequent smooth integration of the 98-unit add-on acquisition, SoCal Pizza's revenue and profitability increased significantly. In 2012, having held the investment for more than four years and having achieved our investment objectives, Sentinel sold SoCal Pizza to another private equity firm in a management buyout transaction.