Bet On ‘Green’ Buses Reaps 3X Return For Harvest

An investment in environment-friendly buses has really paid off for Harvest Partners.

The New York-based firm, which acquires companies in the industrial, business services and consumer sectors, reaped a 3X return (and 45 percent IRR) on its investment in New Flyer Holdings Inc. by streamling production and accelerating the Canadian transit bus maker’s push into environmentally friendly technologies. Its product line includes drive systems that run on clean diesel, liquefied natural gas, compressed natural gas, electric trolley and hybrid technologies.

Harvest Partners, which closed its fifth fund at $815 million in June 2007, led an investment group that included Lightyear Capital LLC to acquire New Flyer, which is headquartered in Winnipeg, Manitoba, in February 2004. Harvest Partners put up $70 million of a total equity investment of $115 million. During their ownership, the firms saw New Flyer’s EBITDA double without expanding its facilities. The company generated about $50 million in EBITDA and revenue of $500 million at the time of the 2004 acquisition. For the 12 months ended June 30, New Flyer had revenue of $900 million and $100 million in EBITDA.

Harvest Partners and Lightyear Capital took New Flyer public in 2005 on the Toronto Stock Exchange, retaining a 53 percent stake. The firms wound down their investment with three secondary offerings, the most recent closing in early September.

After buying the company, Harvest Partners worked with CEO John Marinucci to accelerate New Flyer’s production of clean-running buses. Because these buses are so complicated to make, New Flyer has been able to differentiate itself from competitors, Rich Moreau, principal, told Buyouts.

Also key to the investment strategy was shoring up and tightening New Flyer’s supply chain. These buses need to last 12 years, and they’re often pushed 24 hours a day, seven days a week, so proper engineering and construction is crucial. If one part fails to arrive on time, the entire assembly line suffers. “The key here is operational excellence; you need the supply chain, engineering, and production all aligned,” said Ira Kleinman, senior managing director.

The exit marks the New York-based mid-market shop’s third from its vintage-2002, $558 million fourth fund, which still holds six companies. They include Associated Materials Inc., an Ohio-based maker of vinyl windows, siding and other exterior residential building products that Harvest Partners took private for $436 million in 2002; Aquilex Corp., an Atlanta-based company that provides maintenance and repair to power generation and oil and gas companies, which Harvest Partners bought in January 2007; and Coveright Surfaces, a Düsseldorf, Germany-based company that supplies surface materials to the furniture, laminate flooring and automotive industries bought by the firm in June 2003.