Graham Hops On Dynojet –

Philadelphia-based Graham Partners, perhaps inspired by Discovery’s hit TV show “American Chopper”, decided to try its hand in the art of motorcycle maintenance, acquiring Riverside Co.’s Dynojet platform.

Deal terms were not made known, although the firm’s Web site indicates Graham’s typical equity investment ranges from $10 million to $30 million. Chris Lawler, a principal with the firm, would only disclose that the transaction was financed with senior debt from Merrill Lynch Capital and Sovereign Bank, and also included a mezzanine tranche provided by Norwest Mezzanine. He also said the financing is split with a “ballpark” 60%/40% debt-to-equity ratio.

Dynojet, based in Las Vegas, is a manufacturer of after-market engine performance products for motorcycles, cars and other powersport vehicles, and the company also makes performance diagnostic equipment for engines. Dynojet’s products include its branded Power Commander, Jet Kit and Dynamometer lines, and it has shown compounded annual sales growth of 17% over the last four years, according to Lawler, with adjusted EBITDA growing at a 27% clip during the same period.

“We first became interested in this deal because we are very much focused on businesses that are pursuing conversion opportunities in their industries,” Lawler said. He noted that because of the EPA’s emission control initiatives for motorcycles, Dynojet should benefit from the conversion of carbureted applications to fuel injected technology.

He added that given the company’s ability to bridge its performance gauging products to its performance enhancing technologies, Dynojet has an advantage over its competitors that can’t connect the two spectrums.

Additionally, Lawler cited that Dynojet has a history of producing high returns on invested capital, and Riverside, having pocketed a hefty return itself on the sale, provides evidence for this latest point.

From the transaction, Riverside was able to realize a gross internal rate of return of 47% on the investment, with a cash-on-cash return of 3.7 times its invested equity. For Riverside, which acquired the business in 2000, the exit comes in the midst of an active start to 2004. The firm has completed three acquisitions, including deals for Northwest Economic Associates, American Hospice Management and Harmon AutoGlass. Also, on the same day the Dynojet deal was inked, the firm closed its fourth fund at $750 million.

Graham Partners, meanwhile, used its $227 million Graham Partners Investments LP fund for the deal, the firm’s first fund that is now more than 70% committed. The Philadelphia-based buyout shop intends to begin fund raising for a new fund later this year, which is expected to have a target above its predecessor.


Buyer: Graham Partners

Target: Dynojet

Seller: Riverside Co.

Advisor: GP: Barrington Associates

Lawyer: GP: Drinker Biddle & Reath

Accountant: GP: KPMG