Graham Partners and management last month acquired a controlling interest in Eldorado Stone LLC, a manufacturer of stone veneer. Approximately $30 million in equity was used from Graham’s $227 million fund and management to fund the acquisition. CIBC World Market, Summit Bank, Indosuez Capital and National City Capital were involved in financing the transaction. Indosuez Capital, National City and Argosy were involved in the junior debt financing for the facility. Houlihan Lokey Howard & Zukin served as financial advisors to Eldorado.
“I saw a tremendous opportunity the minute we walked through the door,” said Christina Morin, a senior associate at Graham Partners. Morin said Graham’s position in the middle market lends itself to finding industry sub-sectors that have very high growth at the expense of other materials or products and companies that are operating in the same sector.
According to Boston-based strategy consulting firm IGS, the manufactured stone industry has grown 20% per year over the past few years, which is significantly higher than the 3% to 4% estimated growth rate of the overall siding market. The overall U.S. siding market is approximately $7.5 billion per year and is comprised of traditional siding materials such as natural stone, brick, stucco, vinyl, wood and other composite materials.
San Marcos, Calif.-based Eldorado Stone manufactures stone veneer used in commercial and residential construction projects. The company had approximately $32 million in revenue last year.
“Manufactured stone has been around for decades and is a proven product from a durability standpoint and it has always been very inexpensive compared to alternative siding material,” said Morin. “When you were using manufactured stone from 15 years ago, it looked like fake stone. But if you look at some of the sites that are currently being developed using manufactured stone, you would fall off of your chair and think that it was natural field stone.”
Graham Partners intends to organically grow the company as well make add-on acquisitions. “We’re actually in pretty serious conversations to make a major acquisition that would significantly increase the company’s revenue,” said Morin.
Because of the current credit crunch felt throughout the middle market forcing investors to steer clear of cyclical companies in the face of a softening economy, Morin said trends such as a continual conversion to manufacture stone should help the company grow. “We were able to get our banks comfortable as well as ourselves with the prospects of this business in the near term,” she said.