Westport, Conn.-based Main Street Resources recently closed its acquisition of Disc Graphics, taking the company private in a $20 million deal. The firm teamed up with management, led by Disc Graphics Chairman and CEO Donald Sinkin, for the transaction, which paid stockholders $1.82 a share, representing a premium of 65% over its closing price the day prior to the deal’s announcement. The company also got some help from publicly held Paxar, which chipped in with an equity contribution.
“This is the kind of deal we’re looking for,” said Main Street Founder Dan Levinson, who had been a stockholder in Disc Graphics prior to the acquisition. “Our firm targets proprietary deals, without auctions or any investment bankers, and being able to bring in a strategic partner like Paxar makes this deal a no-brainer.”
Disc Graphics, headquartered in Hauppauge, N.Y., is a diversified manufacturer and printer of specialty packaging. The company focuses on the home video, pharmaceutical, music, publishing and cosmetic markets. In the first three quarters of fiscal 2002, the company reported profits of $421,000, on revenues of $37.34 million. That represented an improvement over a year-earlier net loss of $1.291 million. At its peak, Disc put up revenues of around $70 million.
In financing this deal, Disc Graphics management contributed $5 million of the $10 million equity commitment, while Main Street supplied $4 million and Paxar put in $1 million. The buying group also assumed $10 million of Disc Graphics debt.
From Disc Graphic’s standpoint, the sagging stock market was one of the main drivers to doing this deal. Disc Graphics CFO Margaret Krumholz said, “From our perspective of what was going to happen to our stock in this market – regardless of how we performed [financially] – we didn’t believe the public market would be representative of our true value. It didn’t serve our shareholders or the company to stay public.”
The Sarbanes Oxley Act, a new set of disclosure laws instituted this past year in an effort to raise standards of corporate accountability, also played a role in Disc Graphic going private. “That would have made the public arena more costly and risky, with the increased scrutiny,” Krumholz added.
Main Street, formerly known as Colt Capital, used its $65 million SBIC fund for the acquisition, and the fund still has more than 80% of the original capital remaining. Disc Graphics joins Best, Pawtucket Fasteners, Sage Parts and H.W. Baker Linen in Main Street’s portfolio.
Main Street typically commits between $2 million and $10 million of equity capital in its investments, which encompass acquisitions, growth capital fundings, equity financings and select startups and turnarounds. The firm also donates a minimum of 20% of its earnings to charitable causes through the Main Street Charitable Foundation.