On The Block

A month after a ratings downgrade crushed the company’s stock, KMG America Corp., the parent of insurance underwriter Kanawha, said earlier this month that it would likely put itself up for sale. The Minnetonka, Minn.-based company has hired Keefe, Bruyette & Woods as a financial advisor. Boosted by news of a possible sale, KMG America’s market capitalization climbed to more than $113 million, based on a share price of about $5.10. An analyst with SunTrust Robinson Humphrey, however, wrote in a research note that the “strength of KMA’s balance sheet” should push bids to $8 per share. The company reported revenue of $180 million in 2006, up from $154 million in 2005. KMG America’s stock took a beating in March, dropping by half when ratings agency A.M. Best downgraded its outlook on the insurer. Insurance companies make compelling targets for buyout firms, especially given how much money is being raised to acquire financial services companies.

Fresh off the lucrative sale of its fine paper business, timber giant Weyerhaeuser Co. is exploring the sale of its containerboard, packaging and recycling unit. The Federal Way, Wash.-based company, the nation’s second largest forest products company, has seen declining revenue and profit over the last two years. On news of the possible divestment, Weyerhaeuser’s stock bounced by $4 per share, adding about $1 billion to the company’s market cap. Many investors speculate that divesting the containerboard division would allow the company to convert to a more lucrative real-estate investment trust (REIT) structure. In a research note, analysts with the Buckingham Research Group estimate that the containerboard unit would fetch about $5 billion. A second analyst with BMO Capital Markets put the valuation at between $4.9 billion and $5.6 billion, basing the number on 7x to 8x estimated EBITDA of $700 million for the last year.

Buyout firms on the hunt for plays in the automotive sector may find a target in Atwood Mobile Products, a division of DURA Automotive Systems Inc. Chapter 11-bound DURA announced in May that it’s retained Miller Buckfire as a financial advisor to oversee a possible sale of Atwood, which collected revenue of $330 million in 2006, according to a company statement. Atwood, based in Elkhart, Ind., makes products geared to the recreational vehicle, specialty vehicle and manufactured home markets. Its customers include Fleetwood, Freightliner, Gulfstream, Jayco, Winnebago and Leer. DURA, based in Detroit, filed for bankruptcy in October 2006.