Illinois Shop Ups Ante On Home Construction

Target: Carlson Systems Holdings Inc.

Price: $10 million

Sponsor: Industrial Opportunity Partners

Seller: Carlson family

Financial Adviser: Seller: KPMG Corporate Finance

Legal Adviser: Sponsor: McDermott Will & Emery LLP; Seller: Koley Jessen

Industrial Opportunity Partners is betting on yet another company whose fortunes are tied to home construction.

The Evanston, Ill.-based buyout shop spent about $10 million for a controlling stake in Carlson Systems Holdings Inc., a company that distributes packaging and wrapping products, as well as staplers, nail guns and screw guns used to build houses. Industrial Opportunity worked with First National Bank of Omaha, an existing lender to Carlson Systems, to restructure the company’s term loan as part of the deal.

Carlson Systems sells more than 15,000 products, sourced from more than 900 vendors, through 53 retail locations spread across 22 states, primarily in the Midwestern, Southwestern and Mid-Atlantic regions of the United States, as well as parts of Mexico. “What we saw was a good business that had hit a tough part of the cycle,” said Ken Tallering, senior managing director of Industrial Opportunity. “Our strategy is to make sure the company is capitalized so we don’t have to guess when [the market] is coming back, whether that be six months or three years.”

Taking such risks is nothing new to Industrial Opportunity, which owns two other portfolio companies connected to building products. In its most recent acquisition prior to Carlson Systems, the firm this January bought E.B. Bradley Co., a Los Angeles-based wholesale distributor of cabinets, furniture, hardware, flooring and woodworking supplies.

In its first acquisition, Industrial Opportunity in April 2006 backed The Algoma Group, an Algoma, Wisc.-based company that manufactures and distributes customized wood doors used in buildings and homes. “We are willing to invest in businesses that others are not because of cyclicality and other reasons as long as we believe it’s in a strong position,” Tallering said.

Industrial Opportunity has invested about 40 percent of its first fund, Industrial Opportunity Partners LP, a $185 million pool the firm closed in 2007. It has no exits. Typical equity checks written by the firm are between $5 million to $30 million, while targets of interest generally include North American companies in the industrial manufacturing and distribution sectors, as well as automotive components, building products, agricultural equipment, health care and food products.

Industrial Opportunity isn’t alone in taking chances on the home construction market. In late July, Wynnchurch Capital, another buyout shop based in Illinois, acquired virtually all the assets of bankrupt manufacturer Sencorp, which makes tools, fasteners and other accessories that are used in the home construction industry. That deal was valued at $41 million.