Key Principal Partners Exits One Deal, Enters Another

With a new investment at the close 2009, and exit kicking off 2010, it already looks like a busy year is in store for Key Principal Partners, the private equity arm of banking company KeyCorp.

Phil Curatilo, a principal and the chief marketing officer of of Cleveland-based KPP, said his firm, with $500 million of committed capital, focuses on providing expansion capital to profitable middle-market companies with at least $30 million in revenue. “Our primary emphasis is on minority interest, or non-control deals,” Curatilo said.

Its exit of OAO Technology Solutions Inc., a Greenbelt, Md.-based IT services company, came at the end of January and closed out a position that KPP had held since December 2003, when it invested in a take-private transaction with lead sponsor J.F. Lehman & Co., Curatilo said. KPP said it may publicly announce the exit during the week of March 8.

Its new investment was a $22 million mezzanine infusion in Home Market Foods Inc., a Norwood, Mass.-based a maker of frozen foods for the retail and institutional market, Curatilo said. The deal closed on Christmas Eve. KPP is in a minority position, “as we are for most of our deals,” Curatilo said. But because Home Market Foods has no senior investor, “we are in effect the lead sponsor, he said. “Most of the mezzanine that we do is unsponsored.”

Home Market Foods said it would use the cash to refinance existing debt and support its continued growth.

“With KPP’s investment we have really strengthened our balance sheet. This will enable us to accelerate our growth and ultimately provide the best possible service and product offerings to our customers,” said Douglas Atamian, Chief Executive Officer and co-owner of Home Market Foods, in the Feb. 2 press release announcing the investment.

The OAO exit involved equity and subordinated debt that totaled $13.2 million total at the time of its investment, Curatilo said. He would not discuss KPP’s return on the OAO investment. “That’s not anything we make public.”

Platinum Equity LLC, a Los Angeles buyout shop, announced its purchase of OAO from J.F. Lehman and other stockholders on Jan. 19. It did not disclose financial terms, but it announced Feb. 23 that it would combine OAO with an existing portfolio holding, Pomeroy IT Solutions Inc. of Hebron, Ky. The combined business will operate under the Pomeroy name but may use the OAO brand for certain products and services.

“J.F. Lehman was the lead sponsor there,” Curatilo said. “They did the main equity check.” Both firms sold simultaneously, Curatilo said.