Price For Chemicals Business Drops Post-Agreement

Arsenal Capital Partners recently closed a transaction that provides a nice snapshot of the type of buyout that’s still getting done in today’s tight lending environment.

In sum, it’s a smallish acquisition whose price tag shrank in the scant month between definitive agreement and closing. It involves a carve-out of a profitable target in a growth industry with a dash of exposure to a hot foreign market thrown in for good measure. And the plan for an eventual positive exit is built primarily on add-ons and execution, rather than financial engineering.

The New York-based firm, a middle-market player that acquires companies valued at $50 million to $400 million in specialty industrial, health care and financial services, completed its purchase of the U.S. portion of Ferro Corp.’s fine chemicals business on Nov. 4. Still pending is finalization of the acquisition of related China-based assets of the business. That part of the transaction is expected to close by the end of the year, once necessary approvals from the Chinese government are obtained.

The final purchase price of $60 million for both the U.S. and China-based assets marks a decline of roughly 9 percent from the $66 million consideration disclosed on Oct. 3 when the deal was announced. No explanation was given for the reduction, and the firm declined comment on the change. The U.S. portion of the business was bought for $52 million while $8 million remains in escrow until the closing on the China assets.

Arsenal Capital provided an undisclosed amount of equity for the deal from its second fund, Arsenal Capital Partners II, which closed in late 2006 with $500 million in capital commitments. Senior debt was provided by National City Corp., while mezzanine financing came from Greyrock Capital Group and Triangle Capital. According to Thomson Reuters data, National City provided loans totaling $28 million. Triangle Capital disclosed in a press release that its part in the deal consists of $7 million in subordinated debt and $800,000 in equity. A published report put Greyrock Capital’s portion of the mezzanine financing at around $7 million. Upon closing, the business was re-named Novolyte Technologies.

, a principal at Arsenal Capital Partners, said the acquired assets represent annual sales of about $60 million, and that the firm is hoping to at least quadruple that figure in the next few years through internal investment and acquisitions. Televantos sees the company, which produces electrolytes used in lithium ion batteries, benefiting from growing demand for both hybrid electric vehicles and environmentally-friendly chemicals. Arsenal Capital Partners also doesn’t plan to waste any time adding to the business either. Televantos anticipates the closing on the China assets could come as soon as in the next two weeks, and he said the firm is already talking to potential add-on targets.

Arsenal Capital’s Fund II is roughly 40 percent deployed; Televantos expects the firm to return to the fundraising market sometime within the next two years.