Pfingsten, Hilco Unload Label Maker

Target: Rx Label Technology Corp.

Sellers: Pfingsten Partners, Hilco Equity Partners

Buyer: Cenveo Inc.

Purchase Price: Undisclosed

Advisor: Sellers: Mesirow Financial

Legal Counsel: Sellers: DLA Piper Rudnick Gray Cary

Two years after acquiring Rx Label Technology Corp., Midwestern private equity firms Pfingsten Partners and Hilco Equity Partners have exited the investment—selling the producer of specialty labels for prescription medicines to strategic buyer Cenveo Inc. The sale closed earlier this month.

No terms were disclosed about the transaction, but Thomas Bagley, a senior managing director at Pfingsten told Buyouts, “The return was significant, well above our standard returns.”

According to Cenveo (NYSE:CVO), Rx Label is the only label converter with the capabilities to produce all three prescription label technologies: simplex, duplex and thermal roll. The company also provides shelf-edge marketing labels, point-of-purchase labels and signage used by retailers. The 120-employee business will now operate under the name Rx Technology.

Pfingsten and Hilco acquired Rx Label in June 2004, carving the company, then known as Convergent Pharmacy, out of Convergent Label Technology Inc. As a part of that deal, the two firms installed a new senior management team and information system within the company.

The two private equity firms achieved substantial growth in the company a mere six months later by doubling the size of its manufacturing facility, allowing the company to simultaneously streamline its operations while increasing production capacity by 50 percent. That move significantly increased the company’s revenues and EBITDA, Bagley said. According to a Cenveo press release, the company generates annual revenue of around $40 million.

Add-on acquisitions were a part of the original plan, but none were made. “At the end of the day we decided it was in the best interest of the company to leave it purely in the pharmaceutical label business,” Bagley said. “The add-ons we looked at would have expanded it into other commodity-related industries that we feel would have diminished its value as the leading player in its niche.”

For Pfingsten, Rx Label was a portfolio company of Pfingsten Executive Fund III LP, which raised $285 million before closing in 2004. For Hilco, the investment was tucked into Hilco Equity Partners LP, a $73 million fund that held its final close in 2005.

Stamford, Conn.-based Cenveo, which makes mail envelope and packaging products, is using Rx Label as a port of entry into what it calls the “high growth” pharmaceutical label market. The deal should prove synergistic, as Cenveo will be able to offer additional products to its current customers while providing Rx Label’s existing clients easy access to Cenveo’s traditional products and services. The company expects the deal to add to earnings in 2006, according to a statement.

Labels, while not altogether sexy, has, as an industry, attracted private equity interest. Most recently, San Francisco-based Genstar Capital agreed to acquire nearly all the assets of Fort Dearborn Co., a provider of decorative labels to the consumer goods industry. Also, earlier this year, Huron Capital exited its label investment, York Label Holdings, via a secondary transaction to Wind Point Partners and realized return of nearly 5x its original equity investment. —A.N.