Last month KPS Special Situations agreed to the acquisition of Atchison Casting Corp., a manufacturer of steel and iron castings and components. The firm will pay $40 million for the business, and through the purchase will bring Atchison out of bankruptcy.
As with most companies KPS acquires, Atchison has struggled in recent years. “Atchison was a rollup of around 22 foundry companies that basically operated as separate businesses. It had been built up with leverage, but in the end didn’t have enough operations to service the debt,” said Stephen Presser, a principal with KPS.
The assets KPS purchased, however, have since been whittled down to around four primary operations – all profitable -and are now free from the burden of undergirding the stragglers. “These are the remaining units of the rollup. Some were shut down, some sold, and some were spun off. These are the four core business units, and they have remained profitable throughout what was probably the worst shakeout of the foundry industry,” Presser said. “The company is either the sole supplier or the one or two world-wide supplier for most of the products it makes. It has a very strong position and its customers are the leading players in their industries.” Atchison’s customers include Caterpillar, General Electric and General Motors.
To goose the business, KPS will look to institute some consolidation among the company’s remaining plants and intends to put some money into the modernization of Atchison’s operations. Additionally, buying the company out of bankruptcy allowed Atchison to emerge with a clean balance sheet, leaving behind between $30 million to $40 million in liabilities, and KPS plans to put much of the $40 million purchase price into working capital for the business.
Stringing Up New Deals
Atchison originally came under KPS’s radar thanks to the firm’s earlier purchase of Wire Rope Co. this past summer. “The headquarters of Wire Rope Co. is about twenty minutes from Atchison, and some people involved in that deal brought this one to our attention,” Presser said.
To buy Atchison, KPS will pay $38 million of equity and will cover the $2 million balance with a seller’s note. Once the deal closes, KPS plans to keep its equity component at around $20 million and will supplement that with between $30 million and $35 million of bank debt. KPS will use its $285 million KPS Special Situations Fund II for the transaction.
KPS is acquiring Atchison Steel Castings, Amite Foundry, Prospect Foundry, ACC Global, and London Precision Machining. These businesses, according to Presser, took in a total of $10 million in EBITDA during the fiscal year 2003, on sales of $120 million. A year earlier, before the bulk of the selloff, Atchison’s operations were posting a loss $28.1 million on $388 million in sales.
This will not be Atchison’s first dalliance into private equity, having originally been acquired out of Rockwell International by Riverside Partners in 1991. The firm then floated the company onto the public market two years later, and as a public entity, Atchison continued its rollup of assets in the foundry industry. It wasn’t until 2000, when mounting losses and an investigation into accounting irregularities at one of its units, did the company shift into selloff mode.
The purchase of Atchison closely follows KPS’s recent acquisition of Speedline Technologies, and the deal is expected to close later this month.