First Atlantic Manufactures Two Deals

Lead Sponsor: First Atlantic Capital Ltd.

Co-investors: Lehman Brothers Co-Investment Partners, John Hancock Financial Services, BHM Management

Target: BHM Technologies

Purchase Price: Undisclosed

Financial Advisors: Target: Giuliani Capital Advisors LLC, Robert W. Baird & Co. Inc.

Legal Counsel: Sponsor: Kirkland & Ellis LLP; Target: Varnum, Riddering, Schmidt & Howlett LLP

First Atlantic Capital Ltd. late last month closed two transactions that significantly increased its exposure to the industrial sector. The larger of the two was the acquisition of industrial component provider BHM Technologies, which serves as the first investment made with the firm’s fourth fund. The second purchase was the add-on acquisition of AMSEA Inc., a supplier of fineblanking components and assemblies, to First Atlantic’s 11-month-old investment in Precision Parts International.

The BHM deal stems from a relationship that First Atlantic Managing Director Joseph Levy had with the company’s CEO. New York-based First Atlantic threw in $100 million of equity to lock up the transaction, a source familiar with the deal told Buyouts. Lehman Brothers Co-Investment Partners and John Hancock Financial Services also participated in the equity portion of the deal, as did BHM management.

Michigan-headquartered BHM produces and supplies welded assemblies and machined components to customers in end markets such as light vehicle, construction, agriculture and horticulture. The company generates more than $400 million in revenues and its EBITDA has seen “substantial growth” over the past few years, said Roberto Buaron, chairman and CEO at First Atlantic.

Some of the company’s growth comes from positive industry trends coupled with an underserved customer base. “There’s been tremendous growth in the mining and construction industries as raw material costs have gone through the roof,” Levy said. “The Caterpillars and John Deeres are sold out and backlogged, and there’s still strong demand for their products.”

In addition to growing domestic demand, which BHM serves through its eight U.S.-based operating plants, the company has seen a considerable boost in demand from its customers in Mexico, where its two other plants are located, Levy said.

In this favorable environment, “There are multiple avenues for growth—both internal and from add-on acquisitions,” Buaron noted. There’s also a possibility that First Atlantic could expand BHM by opening a plant in Asia to supply products to domestic players in that region, too, he added.

First Atlantic’s $100 million equity check for the BHM deal was cut from Atlantic Equity Partners IV LP, a $400 million-targeted investment vehicle that’s still seeking limited partner commitments. To date, Fund IV has closed on roughly $135 million with Merrill Lynch serving as placement agent, according to an investor in the fund.

Debt financing for the deal was led by Lehman Brothers, which provided a first lien package, while French bank Calyon followed up with a second lien tranche.

Separately, through the AMSEA add-on, First Atlantic continues to build out PPI, which the firm acquired from Morgenthaler Partners for about $200 million in September, 2005. The company specializes in metal forming technologies including fineblanking, precision stamping and precision gearing. Its products are marketed to customers in the automotive, aviation, construction, medical device and industrial sectors.

AMSEA, a provider of fineblanking components and assemblies, “is very synergistic [with PPI] because it brings a stronger presence to the industrial side of the market, as opposed to the automotive side, and brings new technologies that will help the overall platform,” Buaron said.

Synergies aside, the add-on brings PPI, which already had a leading market share, up a few more rungs on the ladder. “PPI is the number-one player in fineblanking and AMSEA is number-four, so this deal adds substantial power to the platform,” Buaron said.

To facilitate the deal, GE Antares Capital provided syndicated financing for the AMSEA acquisition, a transaction that also closed in late July. —A.N.