Riverside Deal Machines Pumps Away

In the last two weeks, small-market buyout firm Riverside Co. bought one company and sold another, signs that its prolific deal-making hasn’t slowed much amid a contraction in the larger buyout market.

Earlier this month, Riverside Co. sold Moss, a designer and manufacturer of fabric signage, to Century Park Capital Partners. The buyout firms didn’t disclose the deal’s terms, but Riverside Co. said the exit generated a 4.2x cash-on-cash return, good for a 33 percent gross IRR.

Also earlier this month, Riverside Co. carved out the air filtration business of SPX Corp. to create SPX Air Filtration Ltd. While Riverside Co. wouldn’t disclose terms of the deal, the firm said the purchase price fell between €30 million ($45 million) and €80 million. The deal was the fifteenth acquisition (counting add-ons) of 2008 for Riverside Co. and the sixth of the year for Riverside Co.’s European operations. That continues the trend from 2007, when the firm’s European team closed three deals while the operations in the United States accounted for more activity.

Béla Szigethy, a co-CEO of the firm, said the uptick results from the firm’s recent aggressive expansion in Europe. Riverside Co. opened four offices on the continent in 2007—in Amsterdam, Brussels, Madrid and Stockholm—and in general the geographic diversification should allow the firm to maintain its deal flow even if the pipeline in one part of the world slows. In the last year, the firm also established offices in Seoul and Tokyo.

Riverside Co. is seeking $900 million for its fifth North American buyout fund. The firm has encountered some headwinds from backers, however, because it wanted to raise fees to pay for the extensive bulking up in offices, deal-generating personnel and operating executives. Riverside Co. closed on nearly $750 million for the predecessor in 2004.

Szigethy declined to comment on the firm’s fundraising efforts.

Riverside Co. bought Moss in September 2000, when the dot-com-fueled convention business brought record revenue to the signage company. The next year, however, was a disaster, as the convention business dried up. But in the fallout Moss acquired its largest competitor, diversified its product lines, expanded geographically and slowly rebuilt its revenue base. By 2008, the company ended up producing a big return.

Meanwhile, the SPX Air Filtration deal continues a trend for the firm, since about a quarter of its European transactions have been corporate carve-outs. This acquisition, however, will be more of a turnaround effort than is typical for Riverside Co.

“SPX is something of an orphan,” said Karsten Langer, a partner in the firm’s Brussels office. “They haven’t received all of the management attention comparable to what the company’s other business units receive.”