Atlanta Shop Lands Second Deal For Debut Fund

Target: LMS Intellibound Group Inc.

Price: Undisclosed

Sponsor: MSouth Equity Partners LLC

Seller: MCG Capital Corp.

Financial Adviser: Seller: Harris Williams & Co.

Legal Adviser: Sponsor: Alston & Bird LLP

Making a play on shifting hiring trends, MSouth Equity Partners has acquired LMS Intellibound Group Inc., a Norcross, Ga.-based provider of outsourced labor for the grocery and food service industries, in the second deal for its debut fund.

Atlanta-based MSouth Equity purchased LMS Intellibound from MCG Capital Corp. Financial terms of the transaction, which closed on Feb. 27, weren’t disclosed by MSouth Equity but MCG Capital said it sold its stake for $40.5 million.

Michael Long

, a partner at MSouth Equity, told Buyouts that number did not represent the full enterprise value of the deal. MCG Capital, which is headquartered in Arlington, Va., also provided a senior and mezzanine debt financing package comprising about 56 percent of the deal’s capital structure.

MSouth Equity’s first deal was its purchase of GaiaTech, a Chicago-based environmental consulting firm, in July 2007. The buyout firm was founded in 2007 by former partners at Cravey, Green & Whalen, another Atlanta-based LBO shop, to take advantage of lower mid-market opportunities in the distribution, manufacturing and business service industries. From a fundraising perspective, however, the timing was a challenge, as the firm’s formation coincided with the deepening of the credit crunch. MSouth Equity had targeted $300 million for the fund, but ultimately closed at $265 million.

Its investors include about 15 pensions and endowments, as well as some wealthy individuals. The fund technically wrapped up on Jan. 31, but Long said fundraising effectively stopped last August. “It was not the easiest time to raise money,” he said. “Everything just started freezing up.”

Nonetheless, the firm is looking at about six new deals, none of which require debt financing, Long said. Rather, the prospects are mostly situations where the target company is in need of capital and has pre-existing debt to be rolled over. MSouth Equity has a regional focus on the Southern United States. It defines lower mid-market transactions as those between $25 million and $125 million.

With LMS Intellibound, MSouth Equity professionals plans to expand the company’s customer base to include the pharmaceutical industry and distribution centers. The firm liked the company because of its reliable customer base in the food service industry and steady growth. The company’s revenues increased about 13 percent in 2008, and Long said the firm expects another increase of about 19 percent in 2009, although he declined to name the specific revenue amounts. The firm plans to look for add-on possibilities as well.

MCG Capital did not return requests for comment. The company’s cash proceeds, after providing additional financing, were $21.6 million, and it expects at least $5 million more through loan syndication and the transfer of collateral, according to a statement on its Web site. The company originally invested $19.7 million in LMS Intellibound in May 2007.