Industrial Notcom Cleans Up in VC Market

Despite suggestions that today’s venture capital market has no interest in offline issuers, Chicago-based Kenny Industrial Services LLC closed its second institutional round of venture capital financing last week.

The deal netted $31.25 million and stands as proof that there is still room for notcoms alongside the overwhelming array of technology plays.

“We were wondering if – in this feverish dotcom market – if anyone would be interested in a real company with real revenues and even real cash flow that cleans industrial plants, but they received a lot of positive response,” said Thomas Shattan, co-founder and managing director of broker-dealer The Shattan Group.

Saunders, Karp & Megrue acted as lead investor on the transaction with a $28 million participation. The remainder of the available securities were purchased by private equity vehicles managed by the deal’s co-agents, The Shattan Group and Value Investing Partners.

Also as part of the deal, Series A investor The Edgewater Funds sold its existing equity stake in the issuer.

“We were very pleased with this deal,” said Michael Rothman, chief executive with Kenny Industrial. “The comparables between the public and private markets are pretty bad right now, so we decided to go with a long-term private investor like Saunders.”

In return, Saunders Karp got a piece of one of the few companies that can honestly call itself a market leader in the remarkably fragmented industrial services industry, according to 1999 rankings from the Engineering News Record.

With a $70 million coating business and a $50 million industrial plant cleaning operation leading the way, Kenny Industrial plans to rake in $142 million in revenue this year with projected EBITDA of $20 million.

“There are thousands of small companies out there so there are no dominating players,” said Gregory Mendel, co-founder and managing director of The Shattan Group. “The difference with this company, though, is that they have a proven track record of being able to grow aggressively and are now in position, by virtue of having a supportive institutional investor here, to selectively consummate additional acquisitions at an accelerated pace.”