NY Shop Signs Off On Sale Of Coatings Maker

Target: Sermatech

Price: Undisclosed

Sponsor: Praxair Surface Technologies

Seller: Arsenal Capital Partners

Financial Adviser: Seller: Lazard Ltd.

Legal Adviser: Seller: Proskauer Rose LLP

Arsenal Capital Partners recently opted to sell Sermatech, a Pottstown, Pa.-based maker of coatings that protect engines, propellers and other equipment used in the aerospace industry. The move comes after Arsenal Capital replaced the company’s CEO twice in the past three years as it sought ways to deal with a slowdown in the aerospace industry.

The New York buyout shop sold the company to Praxair Surface Technologies, a subsidiary of Praxair Inc., a publicly-listed Danbury, Conn.-based company that produces and distributes natural gas. Terms of the deal, announced July 6, were not released.

Arsenal Capital Founder and Managing Director Terry Mullen told Buyouts the company generated a “good, solid return” but conceded the firm could have done better in a healthier deal environment. He declined to discuss specific multiples because of a confidentiality agreement with Praxair.

But here are a few numbers that were available: Sermatech, which employs 625, last year generated $116 million in revenue, and its EBITDA increased by 85 percent, or 700 basis points, during Arsenal Capital’s ownership, Mullen said, thanks in part to strengthening the company’s management team, increasing the number and quality of its customers and improving manufacturing efficiencies.

“Certainly it could have been better if we sold during a time of peak multiples, which is true with any business,” Mullen said. “But we looked at valuations in the market today, and they have recovered somewhat and we thought the price from Praxair was a good and solid price.”

Arsenal Capital carved the company out of Teleflex Inc., a Limerick, Pa.-based health care equipment maker, in February 2005, for an undisclosed amount. In 2004, the business had EBITDA of $14 million on revenue of $100 million, according to CapitalIQ. The firm had talked to a number of potential strategic acquirers in 2008, but those talks cooled in the fall of that year as the economy continued to deteriorate, Mullen said. Talks perked up again this year as the strategics stabilized. Mullen and his team decided to sell in part because of the downturn in the aerospace industry is expected to continue as many airline carriers delay on the construction of new aircraft. Sermatech also sells products to companies in the power generation industry.

In August 2006, Arsenal Capital tapped John Tucker, a former CEO at Capstone Turbine Corp. in Chatsworth Calif. and York International Corp., as CEO. But in the spring of 2008 the firm replaced Tucker with Jim Mueller, an operating partner at the firm. Mullen declined to discuss the reasoning behind the management change.