Cypress Group Acquires Republic National Cabinet –

New York-based Cypress Group purchased Republic National Cabinet Corp. (RNCC), adding the company to its portfolio of investments through a management buyout. The firm acquired Republic National from H.I.G. Capital Partners in a deal that valued the company at approximately $200 million. The management team in place at RNCC, led by Gene Ponder, also maintained a significant ownership position in the company. The transaction closed at the end of December 2002.

“We’ve had our eye on the cabinet industry [for] the past couple of years,” said David Spalding, vice chairman at Cypress. “It is a highly fragmented industry that has shown steady development, with growth of about 6% a year for the last 15 years.”

While the exact terms of the deal were not disclosed, more than half of the purchase price was in the form of equity, while the rest was covered by a senior debt facility from BNP Paribas. Salomon Smith Barney handled the sale for H.I.G. and conducted an auction for RNCC which, according to sources close to the process, also included bids from private equity firm Behrman Capital and RSI, a strategic buyer.

RNCC, which posts roughly $200 million in revenues and around $29 million in EBITDA annually, makes kitchen and bathroom cabinetry, and markets its products under the Republic, Legacy, Cabico, Eurocraft and Sunshine brands. The company operates 10 manufacturing facilities located throughout the U.S. and Canada.

Under H.I.G.’s watch, Republic National went on a buying spree, expanding its reach in the industry with a series of add-on acquisitions. Groupe Cabico, Sunshine Kitchens and Legacy Cabinets were the three companies acquired by RNCC during its stay in H.I.G.’s portfolio. H.I.G. originally teamed up with management to acquire Republic National in 1998 through a recapitalization and according to Charles Hanemann, a managing director at H.I.G., “It was a very profitable deal for us and our partners.”

“Together with the management, we completed a number of successful acquisitions, expanded each of the businesses geographically and entered into many new product segments,” Hanemann said.

Now under Cypress’s control, it doesn’t appear that Republic National’s strategy will change. According to Spalding, RNCC will continue to look for acquisitions, as it moves to boost its presence in the West and also fill out its product line. Though it is still early, Spalding outlined that Cypress will focus on growing the business for the next four to five years before exiting the investment, at which time he expects that there will be plenty of opportunities to sell the business to either a strategic or financial buyer. He also did not rule out a possible IPO as an exit route.

Spalding is anticipating Republic will grow at about a 10% clip annually, which would be in line with the industry’s growth from the past year. The Kitchen Cabinet Manufacturers Association, which tracks the industry’s performance, reported double-digit growth in overall cabinet sales for eight of the first 11 months of 2002. Market research firm The Freedonia Group also put out a study in July 2002 forecasting that demand for cabinets in the U.S. would grow 6.8% a year through 2006, at which point the industry would reach $15.6 billion. The study cites the increasing size of kitchens and the popularity of remodeling projects as driving demand.

Cypress used Cypress Merchant Banking Partners II, LP fund for the purchase, which closed in November 1999 with $2.4 billion of capital. According to Spalding, the fund has already invested $1 billion, and he expects Cypress to be very active in 2003.