MCM Solves Its China Threat

Target: STACI Corp.

Buyer: MCM Capital Partners

Seller: Mukesh Narang (STACI’s founder)

Financial Advisor: STACI: Chestnut Hill Partners

Legal Counsel: MCM: Jones Day; STACI: White & Case LLP

Accountant: Ernst & Young

While many private equity firms are busy penciling out their Asia strategies, MCM Capital Partners acquired one. Through the purchase of STACI Corp., a global provider outsourcing and supply chain services, the Cleveland, Ohio-based buyout shop hopes to bolster the performance of its own portfolio as much as it STACI’s other clients.

With about 100 employees world-wide, 65 of which are on the ground in Guangdong and Hong Kong, China, STACI provides businesses with access to international sourcing services, including quality control, engineering, manufacturing and logistics. The Fort Lauderdale, Fla.-headquartered company saw $40 million in sales last year and an annual growth rate between 25% and 30% over the last four years, according to MCM Managing Director and Principal James Poffenberger.

“Like all business and private equity groups right now, everybody in North America is having to come to grips with the opportunities and risks of low-cost-country sourcing, so a company like STACI really has the wind at its back,” Poffenberger said. “We’re selfishly hoping to capitalize on it for our own companies,” he added.

Typical wares and services sought from STACI include printed circuit boards and other electronic components, heat sinks, sheet metal fabrication, plastic injection molding castings and extrusions.

Current MCM portfolio companies that may benefit from STACI’s services include Inservco Inc., a provider of contract electronic manufacturing services; Primary Packaging Inc., a manufacturer of heavy-duty polyethylene industrial bags; and AccuSpray Inc., a manufacturer of industrial finishing equipment used largely by automobile manufacturers.

STACI’s sweet spot is coupling its sourcing capabilities with its door-to-door logistical services for companies valued in the $200 million to $500 million range, said Dennis Docherty, the MCM-placed president and CEO of STACI. Companies that fall into that size range are typically too small to have the financial wherewithal to prudently make proprietary inroads to low-cost countries like China, he added.

In the coming years, MCM will back STACI’s efforts to increase market penetration in areas it’s already active in and expand its product portfolio into new segments, such as machine parts, Docherty said.

Poffenberger added that STACI will also be looking at other Asian geographies outside of China “to see whether it makes sense to outright own any assets” in the region. It currently owns stakes in 12 China-based factories.

Aside from the replacement of Mukesh Narang, the founder of STACI, with Docherty, no changes in senior management are expected. Narang still has a “substantial equity stake” in SATCI, Poffenberger said.

The acquisition was made with equity from MCM’s $50 million MCM Capital Partners II LP. Senior financing for the deal was provided by Huntington Bank, while Stonehenge Partners wrote the check to cover the deal’s subordinated debt. All told, the transaction was structured 60%/40% debt to equity, Poffenberger said. No other terms were disclosed.

MCM was introduced to STACI last year through Chestnut Hill Partners, a boutique investment banking firm based in New York.

The acquisition of STACI is the second for MCM’s second fund, which closed last year. However, Poffenberger said MCM expects Fund II’s third and fourth portfolio companies to be acquired shortly. Declining to get too specific, one of the new platforms is a business services company, the other a player in the specialty materials sector, he said. Target transaction sizes for MCM fall within the $15 million to $75 million range. —A.N.