Harbour Halts Sentinel’s Alemite Auction Process –


Target: Alemite Corp.

Seller: Sentinel Capital Partners

Buyer: Harbor Group

Return: 4x ROI; 45% IRR

Financial Advisor: None

Legal Counsel: Seller: Kirkland & Ellis LLP

If a private equity firm goes for more than a year without closing a buy-side deal in an environment like today’s, it would be an anomaly. But when times are tough, it’s a different story. During the last economic recession, some buyout shops chose to hold on to their equity like a camel holds on to its water-using it sparingly, only when needed.

Sentinel Capital Partners is one of those firms. “With 20/20 hindsight, the U.S. officially stepped into that recession in Q4, 2000,” said David Lobel, a managing partner at Sentinel. “Throughout 2001 we were looking and looking, and companies were missing their numbers left and right.”

For a little while during the recession, Lobel said, there existed a school of thought that the trouble was merely a temporary glitch. “After all, we had just come off seven strong years of economic expansion,” he noted. “But we just were not willing, back then, to commit to multiples based on trailing 12 months EBITDA when we weren’t convinced that their performance would continue.”

It was not until after the shock of 9/11 that the markets began correcting themselves and multiples began accurately portraying the state of the overall economy, Lobel said, “And that’s when we decided to jump back into the market.”

By the time Sentinel completed the $38.5 million buyout of Alemite Corp., a provider of industrial lubrication components, in June 2002, it had been 16 months since the firm’s last acquisition. And now, three and a half years later, Sentinel is reaping the rewards for its patience.

Late last month, Sentinel sold Alemite to Lincoln Industrial Corp., an affiliate of the Harbor Group, for an approximate 4x return on the firm’s $13 million equity investment in the company. The deal represents an IRR of approximately 45 percent. Lobel declined to discuss further terms of the transaction.

Founded in 1918, Alemite manufactures lubricating and fluid pumping systems, such as grease guns and related accessories, for industrial use. Sentinel acquired the Fort Mill, S.C.-headquartered company from Invensys PLC, having first identified the company in late 2001.

At the time, Invensys was very highly levered, and Alemite, which was just a small part of its operations, was paying the price, Lobel said. “Essentially, Invensys was just milking it for cash. [Alemite] had not introduced a new product in four years, and after further inspection, we realized that the management team had simply been taking orders, not driving the company forward,” he added.

The key to the Alemite deal, Lobel said, was the opportunity to revitalize the company. Nine months after Sentinel acquired Alemite, the firm replaced Alemite’s former CEO with Dana Waterman. Other steps taken by Sentinel include restarting Alemite’s product development work, enforcing a proactive effort with regard to sales (as opposed to a passive order-taking model), and upgrading the company’s manufacturing techniques.

Manufacturers make up Alemite’s largest end-market. “Picture every machine on every factory floor-all of it needs grease, so there is a huge market there,” Lobel said. Alemite also receives significant sales from OEMs like Caterpillar and John Deere, which pre-package the company’s lubrication and fluid handling equipment with their tractors and other industrial equipment. Additional capital is earned from the automotive aftermarket services sector, companies like Jiffy Lube, which rely heavily on lubrication.

Though Sentinel was already working on its exit strategy for Alemite when it was approached by Harbour Group, the actual process was not what the firm expected. Sentinel, Lobel said, was gearing up for a formal sale of Alemite and was about three weeks away from selecting an investment bank to shop the company when Harbour called to preempt the process. “It was a remarkable deal for the buyer,” Lobel said. “There aren’t too many companies of this caliber sold outside of auction.”