Halifax Hits Pay Dirt –

If there ever was an ultimate oxymoron, “clean dirt” would be it. But for those in the construction and industrial trades, clean dirt does exist, and those charged with doing the actual cleaning, as is evidenced by The Halifax Group’s latest exit, are in a profitable little niche.

In late September, Washington, D.C.-based Halifax exited its two-year, 60% control-stake investment in Soil Safe Inc., a Brandywine, Md.-based provider of environmental services, selling the company to American Capital Partners for $114.5 million. The deal was brokered by Houlihan Lokey Howard & Zukin.

Soil Safe provides the treatment and placement of soil that has been contaminated by petroleum hydrocarbons for real estate, infrastructure development and industrial customers in the Mid-Atlantic region. Through a process called micro-encapsulation, the company binds contaminants into the soil matrix, thus turning it into a safe construction material used for a variety of industrial projects. Soil Safe currently has facilities in Brandywine, Md. and Logan, N.J.

“It’s one of those businesses you don’t see but you’ve got to have,” said Halifax Managing Director and CEO David Dupree. “In other words, it’s a need business versus awant business.” Indeed, the Environmental Protection Agency, at times, mandates soil decontamination before a building permit can be authorized, he added.

On the buy-side, concurrent with its acquisition of Soil Safe, American Capital-a Bethesda, Md.-based business development company (BDC)-purchased real estate in Brandywine, Md. from a Halifax affiliate and made the subsequent add-on acquisition of TPS Technologies Inc., a soil treatment facility that serves the Southern California marketplace. In all, American Capital invested $147 million in what it now calls Soil Safe Holdings Inc.

Prior to Halifax’s acquisition of Soil Safe, the company had revenues of $17.5 million and EBITDA of $6.5 million. Today, not including the add-on of TPS Technologies, the company earns $26 million in revenues and has an LTM EBITDA of $14.5 million, said a source with access to the company’s financial information.

Halifax originally was introduced to the soil treatment niche through its limited partners, many of whom are in the construction trade. Through them, the firm discerned that Soil Safe would be able to ride a strong wave of organic growth. “We saw that the building and construction space was an extremely high-growth industry, and there was a backlog many years long to dig foundations and raise new buildings-especially in the Mid-Atlantic region,” Dupree said.

The firm’s foremost move for value creation in Soil Safe was adding a sales force to the company, a key ingredient it had been lacking since its inception. The result: “The company went from order taking to selling, and finally to getting more market share,” Dupree said.

The sale of Soil Safe is the second exit The Halifax Group has executed in the last three months. In June, Halifax, along with Carousel Capital, sold Meineke Car Care Centers Inc., in a management-led recapitalization to Allied Capital, another Beltway-area BDC.

Both companies were a part of Halifax Capital Partners LP, the firm’s first institutional private equity fund. That investment vehicle has since been 100% invested and is still custodian to five platform companies.

A June 10, 2005 filing with the SEC states that Halifax Capital Partners II LP, a $300 million targeted investment vehicle, has already raised a $113.5 million, and sports a minimum investment amount of $5 million. An investor in Fund II, however pegged the updated commitment level at about $150 million.