Buyer: BlackEagle Partners and Apollo Management
Target: Federal Broach & Machine Co.
Industry: Auto parts
Terms: Purchase price under $50 million
Senior Debt: GMAC
Multiple: Enterprise value/EBITDA=between 4x and 5x
It may not have a fund yet, but the principals of start-up
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
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.