After Dry Spell, Arsenal Taps Dry Powder For Deals

After a year of portfolio harvesting, Arsenal Capital Partners returned to the buyer’s market last month with two deals—and more are on the way.

For its first acquisition in more than a year, the New York-based firm entered a new sector when it invested in FirstAgain, an online consumer lender known for its paperless, unsecured “AnythingLoan.” The majority stake cost Arsenal Capital $30 million.

The firm also snapped up Charter Brokerage Holdings, a third-party logistics provider for importers and distributers of petroleum and petrochemical products.

Arsenal Capital isn’t stopping there—the firm’s principals indicated further announcements were in the offing. The New York buyout shop’s recent acquisitive activity marks a change from last year. The firm spent 2007 exiting several companies from its first fund, deliberately putting deals on hold until 2008.

The firm invests in mid-market specialty industrial and health care companies, but plucked Principal Carty Chock from CCMP Capital Advisors in September to spearhead its entry into financial services. Likewise it hired Operating Partner John Dupuy from Clayton, Dubilier & Rice-backed moving company SIRVA to support further entry into logistics; hence the Charter Brokerage deal.

Look for the firm to step up its buy-side game in the coming months—Arsenal Capital’s pipeline is packed, Chock said. The firm has a cache of dry powder from its $500 million second fund, closed last year, and expects to announce another financial services deal by the end of this quarter. Financial services will be one of Arsenal Capital’s primary areas of focus in the coming two years, given the turmoil in the sector driven by the choppy credit market and diminished consumer spending. The firm is working on deals in both the business services and basic industrials sectors, as well, Chock said.

FirstAgain—launched in 2005 by the founders of PeopleFirst Finance—makes paperless blank check loans to consumers with excellent credit ratings. The blank check loans function as a personal line of credit and range in size from $10,000 to $100,000. FirstAgain’s “cult following,” Chock said, comes from its competitive prices and emphasis on customer service. The marketplace for this type of loan is highly competitive, with players ranging from regional banks to consumer finance powerhouses, but FirstAgain believes customers prefer not to hassle with traditional lenders. Prior to founding FirstAgain, PeopleFirst’s founders sold their auto loan business to Capital One Financial Corp. With FirstAgain, the entrepreneurs expanded beyond auto loans and placed no restrictions on the spending purpose of its loans.

Arsenal Capital declined to provide growth and revenue figures for the company. FirstAgain estimates the marketplace for blank-check loans tops $1 trillion and plans to grow by taking market share. Arsenal Capital’s equity check will support that expansion’s capital requirements, Chock said.

FirstAgain would not disclose how much money it has under management, but said it started with $5 million in equity from family and friends. The company secured a warehouse facility larger than a few hundred million dollars from Merrill Lynch in 2006. Arsenal Capital’s $30 million in equity represents FirstAgain’s third round of growth equity. No shareholders are liquidating their shares in the transaction, and Arsenal Capital’s stake makes the firm the largest equity holder, Chock said.

Arsenal Capital acquired Charter Brokerage in a secondary buyout from previous owners Summit Park Partners, which bought the business in 2006. Though management is staying put, Arsenal Capital will become the sole shareholder. Dymas Capital Management provided senior credit, while subordinated debt came from Audax Mezzanine and Sankaty Advisors, an affiliate of Bain Capital. Terms weren’t disclosed.

The business is “non-asset based,” meaning it doesn’t own trucks or warehouses; instead it handles the delivery services and deals with intricate customs compliance requirements for its customers. The sector is appealing not just because global trading is booming but also because it is recession-resistant, said Aaron Davenport, an Arsenal Capital principal. In a downturn, physical assets can lead to capacity underutilization. An asset-light business like Charter Brokerage is safe from such a liability, he said.

Dominated by mom-and-pop operators, the third-party logistics domain is ripe for consolidation, a roll-up opportunity Charter Brokerage plans to seize on in North America, he said. Further, Arsenal Capital’s newly opened Shanghai office will support bolt-on acquisitions in Asia.

Aside from Chock and Dupuy, Arsenal Capital’s buying surge will get an operational boost from new hires Larry Resnick, an aerospace and defense specialist from Triumph Group, and Anthony Georgio, a chemicals professional most recently employed by Symyx Technologies.

Arsenal Capital’s 2007 exits included the sales of Priority Solutions International, Renaissance Mark and Vertellus Specialties, all from its $300 million debut fund closed in 2003.—E.G.