Arsenal Capital Hits Sweet Spot –

New York-based Arsenal Capital Partners has just made its second acquisition from its not-yet-closed debut fund, Arsenal Capital Partners LP.

In order to capitalize on the growing demand for more advanced label applications, the firm has acquired the Mail-Well Label division of publicly traded Mail-Well Inc., which is the number two player in the North American prime label market. The company will operate under the name Renaissance Mark Inc. The transaction amount was undisclosed.

Arsenal made the acquisition with veteran business executive Greg Mosher and Cerberus Capital Management LP to provide additional equity for the transaction. Senior debt financing was arranged by National City Bank. Mosher will serve as CEO.

“This deal fits very squarely in the sweet spot of our strategy,” said Terry Mullen, one of three co-founders of Arsenal and a managing director at the firm. “We focus on middle-market manufacturing businesses, and [this company] has $220 million in revenue. Its enterprise value is approximately $80 million.”

He added that labeling is a $10 billion industry that is growing about 4% to 6% annually.

As the number two player, Renaissance has 22% market share, and Mullen sees the opportunity to do strategic add-ons, with about 7,500 companies in the North American prime (beverage, health and beauty aids) label market. Renaissance provides glue-applied, pressure sensitive and film labels to Fortune 1000 companies and others looking for high-quality graphics.

“We saw this company as an industry leader with the clear potential to be the number one player,” he said. “And, in fact, our goal is to grow it into a billion dollar company in four to six years.”

It was Mosher who founded the company, which Mullen described as a corporate orphan. “[Mail-Well] wasn’t really investing in it due to balance sheet issues,” he said. “So Greg contracted with the parent organization. He then spoke with a handful of private equity firms and selected Arsenal to partner with him because, one, we understood the industry, two, we provided the capital to close the deal quickly, and thirdly, and most importantly, he felt we had the right resources in-house, i.e., operating expertise.”

Mullen added that Mosher brings a lot of value to the transaction because of his sales and marketing expertise. He is founder of a Denver-based private consulting and investment firm focusing on business consulting, venture capital investments and real estate development. The company he last ran is called ITC Media Conferencing, which was a video conferencing company sold to Williams Technology. He also ran Lincoln National Specialty Insurance.

Between 1998 and 1999, Mail Well was growing aggressively as a printing business and at the same time diversifying, according to Mullen. “[It] acquired four label businesses and combined them, and also invested heavily in equipment. [But] unfortunately, because Mail Well’s stock price fell off, and they were somewhat over-leveraged, they had to divest this asset. It was a business they hated to part with, but they needed to raise cash and to focus their assets on their core commercial business.”

Going forward, Arsenal and Mosher plan to achieve growth and productivity simultaneously. As part of its strategy, the company will pursue lean manufacturing, (meaning reducing the amount of inventory needed on hand) in order to reduce working capital.

Arsenal’s first investment was in Interdynamics Inc., which it acquired in March for $50 million. Interdynamics is a supplier of specialty chemicals to the automotive aftermarket. Arsenal is seeking $250 million for the new fund, and has raised roughly $70 million to date.

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