NY Shop Launches Distribution Platform

Sponsor: Harvest Partners LLC

Goal: To build a new distribution platform

Committed Capital: $200 million

Harvest Partners LLC has committed as much as $200 million toward building a new platform in the distribution industry in the latest example of creative strategies buyout shops are experimenting with to find deals.

The New York buyout shop is partnering on the platform with Steve Riordan, a long-time executive in the distribution business and the former CEO of Communications Supply Corp., a company formerly owned by Harvest Partners that distributes equipment used in infrastructure and telecommunications. The firm sold that company for $525 million in 2006 to WESCO International, generating 3.5x the capital it paid for it.

The platform, unnamed as yet, is currently evaluating five to 10 opportunities, Michael Cardito, a principal at Harvest Partners, told Buyouts. Harvest Partners executives have not partnered with any specific investment bank to find deals, though they are open to hearing about new opportunities. In particular, executives are interested in companies that distribute essential supplies to companies involved in industrial maintenance or that work with wire and cable, electricity, and building materials. They’ll consider companies generating annual revenues anywhere between $200 million and $1.5 billion, and expect to ink their first deal in 2010.

Harvest Partners is pursuing this strategy in part because of its long-time interest in the distribution industry and also because of Riordan’s availability. It is also part of an initiative at the firm to be more proactive about finding investments in a difficult environment replete with downtrodden companies. Meanwhile, in September, the firm consummated its first private investment in a public company by placing an $80 million investment in natural gas services provider Regency Energy Partners LP, as previously detailed by PeHub, a sister publication of Buyouts. “The opportunities that are available today are more skewed away from the traditional control buyouts, whether its investments in public companies or other creative non-control investments,” said Tom Arenz, a senior managing director at Harvest Partners.

Harvest Partners’s platform project appears similar to one announced a week earlier by Navigation Capital Partners, an Atlanta-based shop that partnered with an executive and is committing as much as $120 million to acquire companies whose services can be employed across different segments of the infrastructure sector, as Buyouts reported in its Oct. 5 edition. This strategy—of partnering with an industry executive to pursue deals, as opposed to buying a platform company first—while unusual for Harvest Partners and Navigation Capital, is one that other firms, such as GTCR Golder Rauner, have employed for years with success.

Harvest Partners is also actively pursuing investments in banks and in the energy sector, although it isn’t partnering with industry executives for those initiatives.

The firm’s most recent exit came in December 2008, when it sold Aquilex Holdings LLC to Teachers’ Private Capital, earning 2x its invested capital.