Heartland Industrial Partners has a hard act to follow in 2002: itself. In fact, the firm’s deal-making success in 2001 knocked its competition for Firm of the Year right off the stage.
In one of the slowest years for buyouts since the early 1990s, Greenwich, Conn.- and Detroit-based Heartland closed three deals worth more than $1 billion apiece. While that alone is quite a feat, its relativity is even more intriguing. Heartland’s deals accounted for almost 17% of all the money that went toward buyout transactions last year.While the Heartland name has probably passed through the lips of every GP looking for deals, the firm is actually rather young. With David Stockman at the helm, known for his stints in the Reagan White House and as a Blackstone Group managing director, the firm has no chance of flying under the radar screen. It jumped on the fund-raising seen late in 1999 and used the first months of 2000 to quickly round up $1 billion, despite, or perhaps because of, its Old Economy focus. The firm’s attraction to large deals became obvious with the 2000 acquisition of MascoTech for more than $2 billion. But the real feat came in 2001, when closing transactions, doing mega-deals and securing debt financing were next to impossible.
Each of the three notable Heartland deals of last year, Collins & Aikman, the Textron Automotive add-on and Springs Industries helped validate Heartland’s firm of the year title. One, however, stands out.
Senior Managing Director Dan Tredwell says Collins & Aikman’s acquisition of Textron’s TAC-Trim business took the most years off his life. For $1.2 billion, it might have been worth it.
“Getting the Textron automotive deal financed and closed was the most challenging aspect of 2001,” says Tredwell. “It was a landmark transaction in the auto industry, as well as in the financing industry. There were at least a dozen points in time when it looked like we couldn’t get it done.” Sheer determination along with some creativity on the parts of the experienced businessmen at Heartland finally pulled the Textron business to close just before Christmas, after nine months of haggling. The thing that kept Stockman, Tredwell and the rest of the Heartland team so focused was the business’s perfect fit into Collins & Aikman. The financial markets were what caused the gray hairs.
According to Tredwell, C&A, which makes interior car parts, needed Textron’s trim business (TAC-Trim). The company had everything else that makes up the cockpit of a car, except TAC-Trim’s instrument panel products. This was important because coordinating car interiors, not only for comfort, but also for design purposes, is on the forefront of car-buyers’ minds as more luxuries are added.
“The interior of your car is not just a place to sit and drive,” Tredwell explains. “It’s where the radio and navigational system is, not to mention the arrival of computers. Billy and little sis are in the backseat playing Nintendo or watching a movie. The interior is getting very sophisticated, and all these sounds need to be directionally contained.”
So acquiring TAC-Trim was critical for C&A in becoming the leading manufacturer of interior car components. Not getting the deal done was not an option.
“The real story is, this deal absolutely made sense from a business perspective, but its capital structure kept getting rejected in the financial markets,” says Tredwell. “We didn’t take no for an answer. Fortunately, we had cooperation from the seller, and we kept reworking the deal until the lenders bought it.”
As was the case with many deals in 2001, the debt underwriters kept tripping up the TAC-Trim deal. To get more equity, Heartland offered a round of co-investment to its limited partners. Reducing the debt to a palatable amount took more effort. The firm embarked on a number of innovative and complicated steps that “made sense to the debt markets, to the sellers and to us,” Tredwell says. For example, Heartland removed from the deal a difficult-to-finance Italian subsidiary of TAC-Trim and put it into a separate joint venture between itself and Textron to be purchased at a later date. Additionally, Textron took back a significant amount of seller paper. Compared to the original structure of the deal, Heartland was ultimately able to reduce the aggregate amount of debt by $425 million.
When the deal finally got to pricing in the high-yield market, postponed briefly after Sept. 11, it was wildly successful.
“There was a tremendous amount of demand for the paper in the high-yield and bank markets because it was an appropriately structured credit and because of the power of the investment thesis,” Tredwell says.
While the acquisition of Textron’s TAC-Trim business proved most challenging, Heartland’s other deals are nothing to scoff at. The firm took textiles giant Springs Industries private for more than $1.2 billion, and early in the year brought C&A under its wing for a similar amount.
“Textron was tough to get closed, but when you’re doing equity investments, you don’t know at the time that you make them which is going to turn out to be the best,” says Tredwell, “so it’s hard to say without the benefit of hindsight which was actually the best. Right now, we love them all.”
Leslie Green can be contacted at: