Graham Builds On To Its Masonry Foundation –


Target: Design Masonry Inc.; John Ginger Masonry

(The Masonry Group)

Buyer: Graham Partners

Seller: Company Management

Financial Advisors: None

Legal Counsel: Graham Partners: Drinker Biddle &

Reath LLP

Accountant: Graham: KPMG

Graham Partners has already proven that it knows how to succeed in the masonry industry. In June 2004, the firm posted a more than 4x equity return on its exit of Eldorado Stone in a deal valued at $202.5 million. The sale represented a multiple of roughly 9x Eldorado’s LTM EBITDA.

Now, with a track record behind it, and favorable trends blowing at its back, Graham Partners feels the time has come to make another play in the sector. Earlier this month, the Newtown Square, Pa.-based private equity firm acquired masonry contracting and manufacturing companies Design Masonry Inc. and John Ginger Masonry, and subsequently merged the two entities to form The Masonry Group.

Interestingly, while Graham Partners was actively pursuing a play in the masonry segment, neither Design nor John Ginger were original targets on the firm’s radar, Graham Partners Managing Principal Joe May, told Buyouts.

In 2004, before Graham Partners had even come across the two California-based companies, the firm was looking to acquire a separate Golden State-based masonry contractor being sold to facilitate its owner’s retirement from the industry. Later that year, during its search for a management team to lead the company, Graham Partners was introduced to the management teams of Design and John Ginger and began discussions with them about heading up the company’s operations.

“Discussions quickly evolved from putting together a management team to the potential of combining [Design Masonry and John Ginger],” May said. “It was an attractive proposition for all of us because major home-builders are getting larger and larger, taking share from the smaller ones. And as they grow in scale, they are looking for larger service providers and suppliers to facilitate their operations,” May added.

May said that because the two companies were not formally up for sale, financial advisors were not used for either transaction.

The Masonry Group represents Graham Partners’ 14th platform company investment and its fourth buyout for Graham II, which the firm closed at $465 million in April 2005. Madison Capital Funding LLC provided the senior debt and AEA Mezzanine Fund supplied the subordinated tranche for the transaction. May declined to disclose specific terms of the transaction, noting only that it was financed with a “conservative capital structure.”

The size of the residential masonry services industry, where The Masonry Group is active, is about $900 million, May said, adding that it is a very fragmented market. That Graham Partners chose to set up shop in California specifically has to do with “compelling demographic trends,” he further noted. “New housing has not kept pace with population growth in Southern California. In light of that, we believe that the underlying demand for housing in California will remain strong for quite some time.”

Indeed, the U.S. census bureau estimates 220,000 new households will be established in California per year through 2020, well above current and recent historical levels of new housing supply.

Another driver behind the growth of the residential masonry services market is that-for purely aesthetic reasons-masonry products are finding their way onto a greater percentage of both new and renovated homes. “People like the look of permanency that you get out of masonry products,” May said.

The Masonry Group is involved in the manufacturing and installation of masonry products including residential walls and stone veneer, residential fireplaces and precast products. The company also has a hand in commercial masonry services.

May said that under Graham Partners’ watch, The Masonry Group is expected to further develop its fireplace and precast mantel operations, and to expand its business lines into new geographic regions-branching out from the Western U.S.

“On a selected basis, we could acquire similar assets, but most of [the company’s] growth will be in [its] pool of skilled labor,” he said, adding, “Design Masonry has an inbuilt school where it trains its own contractors. That will serve as a great platform to enable future growth.”