Crescent Capital Investments Inc., the private equity arm of First Islamic Investment Bank, finished out the summer with a bang. The Atlanta-based firm closed two deals in the second to last week of August, taking an add-on for its outdoor sporting goods platform, Watermark, and a control stake in aviation company Cirrus Industries.
Crescent Capital makes all its purchases on behalf of investors in the Middle East (Buyouts August 27, p. 1). Its parent, First Islamic, fronts the capital, which is later replenished by wealthy individuals buying into the investments.
The first deal in the sequence was the $91 million buyout of Yakima Products Inc., which is building on the WaterMark business, formed by Crescent in 1998. The add-on was financed with a combination of equity from First Islamic, and joint debt financing by First Islamic, which provided a working capital facility, and HSBC, which provided term debt.
Crescent formed WaterMark, which manufactures kayaks and canoes, by buying out and merging Perception Group Inc. and Dagger Canoe Co. The addition of Yakima will extend the business into manufacturing sports-related racks and rack accessories. “Yakima is a super fit with our existing kayak businesses, which basically have their strongest market position on the east coast and distribution on the east coast,” said David Crosland, a managing director at Crescent Capital. “Yakima [based in Arcata, Calif.] is just the opposite.”
Crosland added that Crescent Capital liked the production synergies between the businesses. “The kayak businesses make boats, but they also make paddles and foot braces and other accessories that are really ideal for manufacture in Yakima’s facilities,” he said. “[Also] the combined entities sell in very similar distribution channels. So you get better sales rep mind-share and better retailer mind-share.”
Crescent Capital plans to manage the outdoor sporting companies as a portfolio of brands rather than as separate companies. Crosland likens the management style to Procter & Gamble. “[We have] the brands managed by brand managers with support from the general corporate entity which has a portfolio of marketing expertise, manufacturing expertise, products design, accounting, etc.,” he said.
The first add-on for WaterMark was Harmony, a manufacturer of accessories for kayaks and canoes, in early 1999. That deal was under $10 million. Crescent has a couple more acquisitions in the pipeline for WaterMark in the near future, but any sizeable acquisition is likely nine to 12 months away, Crosland said.
Immediately following the Yakima add-on, Crescent Capital took a 61% stake in Cirrus Industries, an aircraft manufacturer, for $143 million. Veering slightly off course from a traditional buyout, Crescent financed the deal entirely with equity, clearing all the company’s current debt. Additionally, rather than entering into a long-established traditional business, Crescent chose to invest in Cirrus, which began production of its highlight aircraft, the SR20 and SR22, just last year. Cirrus offers the only general aviation aircraft that can float to earth via parachute in the event of a major mishap.
Currently the company has sold more than 200 aircraft and has a backlog of approximately 600 aircraft, though because it is a new line of products the company has yet to work out all the kinks. “Cirrus is getting down the learning curve with respect to production efficiency, so it’s got a history of losses but a very sizeable backlog and good visibility in terms of revenue,” said Crosland. “Our objective was to come in and give it the kind of capital structure it needs to drive those costs out of the system and develop new products.”
The aircraft that Cirrus manufactures are four-seat, single engine airplanes that are capable of reaching 160 knots and 180 knots in the SR20 and SR22, respectively. Crescent Capital suspects that baby boomers moving toward retirement, spending more money on themselves and using their time more efficiently will work in favor of Cirrus and its products. Further, Cirrus is currently in a league of its own. “Cirrus has come out with the first FAA type-certified, production-certified, entry-level, general aviation aircraft in the last 25 years or so,” said Crosland. “So it is arguably a very disruptive product and it incorporates almost three decades worth of advancement in aerodynamics, avionics, ergonomics, etc.”
Crescent also expects deteriorating service of commercial airlines to drive Cirrus’ growth.
Looking forward, Cirrus will be focusing on producing more planes, more efficiently, and offering product enhancements such as de-icing capabilities, collision avoidance systems and a new line of planes with retractable gear. Crescent plans to double the company’s production rate within the next three to four months.