Gryphon Taps LPs To Finance New Deals

Sponsor: Gryphon Investors

Target I: Aladdin Food Management Services; AmeriServe Food Management Services; Fitz, Vogt & Associates
Seller: Weatherly Group
Price: $50 million
Financial Adviser: Seller: McColl Partners
Legal Counsel: Sponsor: Parker Poe Adams & Bernstein LLP, Kirkland & Ellis; Seller: Bryan Cave

Target II: Accelerated Rehabilitation Centers; OccuSport Physical Therapy
Price: Undisclosed
Financial Adviser: Seller: Houlihan Lokey Howard & Zukin
Legal Counsel: Sponsor: Kirkland & Ellis; Seller: Neal, Gerber & Eisenberg

Target III: Berks Technical Institute
Price: Undisclosed
Legal Counsel: Sponsor: Kirkland & Ellis

Gryphon Investors couldn’t have closed its recent flurry of deals without a little help from its friends. The San Francisco-based firm relied on lending clubs made up of its limited partners to help finance a buying spree announced earlier this month.

The deals—two new platforms and one add-on—took more than five months to close while Gryphon Investors lined up debt financing. And without the help of the lending arms of LPs like New York Life, Thrivent Financial, Northwestern Mutual Life, two of the deals would still be stuck in the pipeline.

In the first transaction, Gryphon Investors bought and merged two physical rehab centers, Accelerated Rehabilitation Centers and OccuSport Physical Therapy, which will operate under the Accelerated Rehabilitation name. For its second deal, it added Berks Technical Institute, a career college operator, to its post-secondary education platform, Delta Career Education Corporation. Lastly, the firm bought three separate food-service management businesses from mid-market buyout shop Weatherly Group and rolled them into a newly formed company called TrustHouse Services Group.

The deals leave Gryphon Investors’s third fund, a $415 pool with a $100 million annex, half-way depleted. The firm closed the $415 million fund in 2006; it closed the annex vehicle earlier this year as a way to keep making deals without having to launch a formal fundraising effort.

In the first deal, Gryphon Investors formed a new platform with the acquisition of two Chicago-based physical rehabilitation service providers. The purchases of Accelerated Rehabilitation Centers and Occusport Physical Therapy cost less than $100 million and used a traditional debt-to-equity mix, according to a source familiar with the situation. Orix USA Corp. led the senior financing facility, with New York Life and Thrivent Financial offering mezzanine pieces. Management retained a 25 percent stake.

Gryphon Investors’s second deal, an add-on to its post-secondary education platform, Delta Career Education Corporation, cost less than $25 million. The firm bought its target, Pennsylvania-based Berks Technical Institute, from Forefront Education, a portfolio company of GTCR Golder Rauner. The deal required Gryphon Investors to increase Delta’s existing credit facility. Delta is Gryphon Investors’s largest investment to date. GE Corporate Finance backed the deal with New York Life and Northwestern Mutual Life kicking in mezzanine debt.

Meanwhile, to form its foodservice platform, TrustHouse Services, Gryphon Investors paid $50 million to acquire Aladdin Food Management Services, AmeriServe Food Management Services and Fitz, Vogt & Associates. The companies, which provide on-site food service labor to hospitals and schools, have combined annual revenues of around $100 million, according to a source familiar with the deal.

No single lender was willing to underwrite the entire debt facility for TrustHouse Services, even when Gryphon Investors agreed to throw in 50 percent equity. The firm assembled a club of six lenders to provide debt capital. CIT Group led the arrangement, providing senior debt alongside Merrill Lynch, Babson Capital and Emporia Capital. Junior lenders Churchill Capital and Triangle Capital provided mezzanine debt.

TrustHouse Services was a package deal—investment bank McColl Partners auctioned the companies with industry veteran Mike Bailey already signed on to run the combined business. He emerged from retirement to run TrustHouse Services after building the country’s largest food-service management company, Compass Group. In terms of revenue, TrustHouse Services is among the top 15, with giants such as Aramark and Sodexo towering over hundreds of small players.

Platform building in highly fragmented industries is a core part of Gryphon Investors’s strategy, said John Rogers, a principal with the firm. “The primary idea is to build larger, more professional companies with economies of scale,” he said.

After integrating the three businesses, Gryphon Investors plans to continue its roll-up in the sector while growing sales internally, said Nicholas Orum, a partner. Trusthouse Services’s northwestern and mid-Atlantic business base has room to grow geographically, he added. Although Gryphon spent six months lining up financing, the firm remained committed to the deal, enticed by Bailey’s credentials and the recession-proof prospects of the education and health care sectors, which TrustHouse Services caters to.

Despite the long journey to secure financing for these deals, Gryphon Investors plans to continue aggressively seeking out more targets, Rogers said. The firm has half of its fund to deploy and expects to close on more buys this year.—E.G.