BlackEagle Closes Deal Without A Fund

It may not have a fund yet, but the principals of start-up BlackEagle Partners have closed their first deal, reaching in part into their own checkbooks to purchase auto parts supplier Federal Broach & Machine Co. Apollo Management supplied much of the equity for the control-stake deal and also chipped in mezzanine debt.

The deal came out of a busted auction run by W.Y. Campbell & Co. A small, specialized parts maker in a pained industry, Federal Broach & Machine scared off other buyers earlier this year and BlackEagle began negotiations in May. Terms of the transaction weren’t disclosed.

“People got spooked by the automobile aspect and then we came in,” says BlackEagle Managing Partner Mike Madden, whose firm’s track record was established earlier at turnaround investment shop Questor Management. BlackEagle has been in the market with a fund since last year, but has yet to close on any money. The fundless deal could be in part a bid to prove out its thesis to prospective limited partners.

Harrison, Mich.-based Federal Broach & Machine, founded in 1952,has operations in Michigan, South Carolina and Florida. It generates less than $50 million in annual sales, according to BlackEagle. Its main business is making broach machines to cut metal parts, as well as tools that cut ring gears used in automotive transmissions.

BlackEagle plans to improve the company’s product quality, its capacity to produce its machines, and its timeliness in meeting orders. The company should also get a lift by the growing popularity of six-speed transmissions, which require three ring gears instead of two, says Jason Runco, a partner at BlackEagle. Federal Broach & Machine is one of the few companies that make machines that cut ring gears.

Two sons of the founder, William and Robert Martin, have built the business up and will be staying on to manage it. According to Runco, it was in part the good rapport that his firm built with the Martins that sealed the deal for BlackEagle. And that’s a good thing, he says, since on this deal, like any other involving a family-owned, middle-market business, “We’re going to be chained together like two convicts in a swamp.”

BlackEagle, a team that includes three former Questor Management pros, has been trying to raise its fund for over a year. The firm is trying to lock down a lead investor to the tune of between $30 million and $50 million, says a person familiar with the matter.

Madden and his team left Questor in early 2005 and originally called the firm Centurion Capital Partners before deciding on BlackEagle. At that time it was trying to raise a fund between $300 and $400 million, as reported in Buyouts. The firm has lowered its sights some, now aiming for between $250 million and $300 million with help from placement agent Probitas Partners. Questor itself has question marks surrounding its own fundraising plans after the recent departure of its head of fundraising, Jim Griffin.—M.C.