Call it intuition or just good strategy, but Cleveland-based buyout firm MCM Capital Partners is not budging from its original old economy targets. In its most recent acquisition, the firm picked up MicroGroup Inc., a Massachusetts-based manufacturer of metal components, for an undisclosed value.
In order to complete the deal, MCM Capital brought in National City Equity Partners, a subsidiary of National City Corp. of Cleveland, as an equity partner. The deal, which closed a week ago, was financed with a combination of senior debt provided by First Bank of St. Louis, Mo. and mezzanine provided by Wells Fargo Mezzanine Capital.
MCM seeks investments in the $25 million to $50 million range. Mark Mansour, managing director and principal at the firm, said this transaction is typical of MCM.
MCM Capital and National City jointly own approximately 80% of the company, while MCM is the largest single shareholder.
“Not that we have any magic crystal ball, but starting in early 2000, we anticipated that there would be a slowdown in the economy, and we were looking for investment opportunities that were less cyclical,” said Mansour. Health care was among the industries the firm was checking out, and it came upon MicroGroup, whose medical-related clients represent 70% to 80% of its customer base. However, the variety of clients within that sector and the ability for MicroGroup’s products to expand into other arenas is what appealed to MCM Capital. The company’s products, which include stainless steel tubing, fittings and valves, among other metal components, target original equipment manufacturers in the medical device, analytical instrument, aerospace, semiconductor, automotive, basic research, chemical and communications industries. “We looked at a lot of companies that we really didn’t feel were suitable as stand-alones or platform-type companies until we ran across MicroGroup,” said Mansour. “We were looking for a business that had a much broader capability and much broader client base. MicroGroup had both of those things.”
As for growth, MicroGroup is primed for tremendous organic growth and is being considered as a platform. “Our gameplan would be to execute one or two strategic acquisitions of businesses that are complementary to the company’s product offerings or capabilities,” said Mansour, who distinguishes between strategic acquisitions and roll-ups. He is not a proponent of the latter.
This is MCM’s seventh portfolio company in its first fund, a $50 million vehicle that is 55% invested, all in traditional industries. The firm originally anticipated having the fund fully invested late last year, but was unable to find companies to invest in for their intrinsic value, said Mansour.
However, things may be looking up. Mansour said that with multiples for industrial companies way down (from a peak of approximately 7 to 7.5 times Ebitda in late 1999 and early 2000) against depressed earnings, it’s a good time to be a buyer.
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