Sponsor: One Equity Partners
Target: NCO Group
Offer Price: $1.2 billion
Fund: One Equity Partners II
Financial Advisiors: NCO: Credit Suisse; One Equity: Morgan Stanley
Legal Counsel: NCO special committee: Bass Berry & Sims PLC; NCO: Blank Rome LLP
It’s been a busy month for
In one day, May 16, the private equity firm made a $1.2 billion offer, in tandem with management, to take debt collector NCO Group private, and separatedly agreed to a $1 billion sale of portfolio company Progress Rail Services Inc. The announcements were not related and a One Equity spokeswoman declined comment.
As for NCO, the offer from the firm and the company’s CEO, Michael Barrist, valued the business at $27.50 per share. Shares leapt up 40% and traded as high as $27.16 on the day. The offer represents an EBITDA multiple of around 7 times.
Horsham, Pa.-based NCO provides accounts receivable collection and management services. It has 80 centers in North America, the U.K., India and other countries.
There has been a proliferation of activity in the accounts receivable space. JMP Securities Analyst David Scharf speculated in a research note that because of the activity another bid for NCO could materialize from a financial buyer.
NCO itself has made acquisitions in the past, buying Risk Management Alternatives out of bankruptcy and RMH Teleservices Inc. Scharf names West Corp. and Convergys as the most likely strategic players to lob a competing bid, but neither is very probable, he said.
The firm will use funds come from
NCO’s special committee hired financial advisor Bass, Berry & Sims PLC as legal counsel and Credit Suisse as financial advisor. Blank Rome is representing the company.
While One Equity is adding one new company to the portfolio, the firm is shuttling another existing investment out and will net a significant return in the process. It bought the Alberta, Ala.-based Progress Rail in March 2005, paying $429 million with an equity investment of about $100 million. The sale comes 14 months after the original deal and will result in a more than a 5x gain. One Equity had considered an IPO as part of a dual-track strategy, but found the offer from strategic buyer Caterpillar more appealing.
Progress Rail is a remanufacturer of locomotive cars and railroad infrastructure. Caterpillar CEO and Chairman Jim Owens has earmarked remanufacturing as a key area for growth for the company. The market for rail aftermarket services is estimated at around $30 billion.
Progress Rail has benefited from high energy prices and growing demand for rail services. The company had sales of $1.2 billion in 2005 and has one of the most extensive rail service and supply networks in North America. Progress Rail’s CEO Billy Ainsworth will be joining Caterpillar with his senior management team.—M.C.