MCM Has High Hopes For Dexmet

Target: Dexmet

Purchase Price: Undisclosed

Sponsor: MCM Capital Partners

Seller: Dexmet management

Financial Advisor: Seller: None

Legal Counsel: Sponsor: Calfee, Halter & Griswold LLP;

Seller: Eilenberg & Krause LLP

Accountant: Ernst & Young

Years ago, MCM Capital Partners hit a home run with its investment in a material sciences company called Advanced Ceramics Corp. After an original equity investment of only $2 million, the firm realized a gain of $54 million when it sold the maker of engineered ceramics to General Electric in 2002.

Today, the Cleveland-based firm is up at bat in the material sciences sector again, having recently closed on its acquisition of Dexmet, a manufacturer of specialty expanded foils and polymers. And already the firm is expecting big things from the company.

“We intend to leverage [Dexmet’s] expertise…with the goal of doubling revenues within five years,” says MCM Managing Director Mark Mansour, who led the transaction. Adds Jay Poffenberger, also a managing director at the firm: “It’s a profitable business that has some market dynamics at its back that should allow for some nice top line growth.”

In laymen’s terms, Dexmet expands materials such as aluminum, Teflon and exotic metals to create thin foils, open-air materials, and mesh-like surfaces. It then manufactures the machined surfaces into products, such as filtration media that’s often used in the life sciences sector, and specialty lightning conductors that are used to protect airplanes from direct lightning strikes.

Additionally, Dexmet is seeing growing demand for its products from the fuel-cell market, which is being driven by the onslaught of new electronic gadgetry that’s powered by lithium batteries. Among Dexmet’s 400-plus customers are Boeing, 3M, Samsung and Lockheed Martin.

Dexmet management is expected to stay with the company throughout MCM’s holding period, and 25-year material science veteran Harry Shimp has been tapped to take over as chairman of the Branford, Conn.-headquartered company.

Terms of the transaction were not disclosed. But according to MCM’s Web site, the firm targets transaction sizes ranging from $15 million to $75 million. Senior financing was provided by Key Bank, while GMB Mezzanine Capital provided the subordinated tranche as well as an equity co-investment. Management rolled over equity to cover about 5% of the purchase price, GMB holds about 20% of the equity, and MCM holds the the lion’s share at 75%, Poffenberger said.

The deal materialized after an intermediary introduced MCM partners to Fred Weber, the former chairman of Dexmet’s board of directors. The company was never formally up for sale, but after about 18 months of phone calls and meetings, MCM’s persistence paid off with the proprietary deal.

Building value in Dexmet is expected to me an organic game. “It’s really a sales- and marketing-oriented growth path,” Poffenberger said. “There is a lot of unrealized growth in a number of products that [the company] already makes, and we intend to search out and exploit as many as we can find.”

In other MCM news, the firm recently completed the add-on acquisition of Palatine, Ill.-based RW Home Products for its Electric Sweeper Service Company (ESSCO) platform, a wholesaler of vacuum cleaners and vacuum cleaner parts.

“RW was a formidable competitor, and its acquisition substantially increases [ESSCO’s] footprint in the Midwest,” said Steven Ross, an MCM general partner. The firm also recently announced the add-on of Cirrus Trading Ltd. to the ESSCO platform.

Both Dexmet and ESSCO are portfolio companies in MCM Capital Partners II LP, which closed in late 2004 with $50 million in capital commitments.

MCM acquired Valley View, Ohio-based ESSCO in 2005 with the goal of expanding the company’s geographic footprint to include Western and Southwestern states beyond the Rocky Mountains, as well as a possible northward push into Canada.

Investors in the fund include Key Bank, National City Equity Partners, Case Western Reserve University and John Carroll University, in addition a number of CEOs from MCM’s Fund I portfolio companies. MCM manages $100 million in capital.—A.N.