Cortec Group Inc. wrapped up Cortec Group Fund III LP late last year with approximately $332 million in committed equity. And the specialty niche middle market deal seekers have already put their capital to work on two recent transactions. In addition, New York-based Cortec Group has broadened its management team by hiring operating partner Tatum Pursell as well as financial specialist Jonathan Stein. Both joined the firm as managing directors.
The firm started raising it latest fund in early 2000 with an initial cap of $300 million but decided to ask its limited partners for waivers to include a few additional “high quality” investors that wanted to partake in the latest vehicle, said Partner David Schnadig. “We finished fund raising early in the summer and from then on it was just wrapping up closings,” he said.
With a slew of mega funds knocking on the doors of their LPs seemingly all at once last year, the partners at Cortec Group found the fund-raising environment to be relatively “painless.” “We believed in ourselves and our track record but were very pleasantly surprised by the reception we got,” said Schnadig. “We were really only out there knocking on doors for five or six months.”
After raising Fund III, the Cortec Group set out to acquire Gaymar Industries, a manufacturer of temperature management products for the hospital and long-term care market, and Axia Inc., a diversified manufacturer comprised of three businesses. The purchase price and terms of the Gaymar transaction were not disclosed. Axia was acquired for an estimated $220 million. First Union led a syndicate of banks in providing $145 million in debt financing for the transaction and placed approximately $40 million in subordinated debt.
Schnadig said Gaymar Industries was actually a busted auction process and the Cortec Group and a few other investors “took a hard look at the company.” Cortec’s operations expertise in niche manufacturing companies helped them bond with and ultimately win over management’s sentiments, said Schnadig. “Gaymar is in two areas in a manufacturing standpoint in which we have prior expertise. They’re a manufacturer of very sophisticated plastics products and they have an electronic control unit both of which we have experience in. And at the end of the day, that won us the company with us paying a pretty attractive price and the business is doing fantastically,” he said.
Schnadig also said the platform was close to signing on two add-on acquisitions. “So, knock on wood, we hope to close on these within the next several months.”
Based in Buffalo, N.Y., Gaymar reported annual revenue of about $50 million. Gaymar’s pressure ulcer management products include mattress overlays and replacements, and its temperature control products regulate blood/fluid and body temperatures during and after surgical procedures.
The Cortec Group also repurchased Axia Inc., a Fund I portfolio company which the firm sold in 1998, from an investment group . Axia’s three business include Ames, a manufacturer of automatic taping and finishing tools used by tradesmen to finish dry wall joints; Nestaway, a manufacturer of dishwasher racks and other formed wire products for commercial and consumer applications; and Fischbein, a manufacturer of industrial bag closing and handling systems, flexible conveyors and storage racks.
“This time around we think the businesses are all in great shape and what we’re really trying to do is grow Axia dramatically through acquisitions and we’ll be working on several,” said Schnadig. “Axia now is about $150 million in sales and we want to take that dramatically larger. Both businesses are north of 20% EBITDA margins.” Schnadig also said the firm anticipates exiting its investments in three to five years by a private market sale.
In addition, the firm also hired two managing directors to help run existing and new portfolio companies as well as sourcing new transactions. Pursell joins the Cortec Group from Baldwin Hardware Corp., a Masco company, where he served as president and chief operating officer. Pursell’s new responsibilities will include working with portfolio company management teams to increase sales and earnings. “Tate exemplifies our operations expertise,” said Schnadig. “That means helping the guys who run our companies run it better.
Stein joins Cortec from Three Cities Research where he served as its principal. In his new capacity, Stein will focus on sourcing new transactions for Fund III. “John Stein was exactly what we were looking for in a seasoned deal professional on the transaction side of our shop,” said Schnadig.
“We think we’re staffed up and ready to roll,” he added.