At first glance, an acquisition that combines cable wiring with fuel and energy sounds incredibly avant garde or, worse, downright absurd. However, a closer look reveals that The Riverside Company’s latest deal is not trying to marry fiber optic cable with oil-rich fields, but instead is linking its electric mining cable company with coalmines in Appalachia, in a transaction that offers plenty of synergies.
The Riverside Company completed its acquisition of A&C Inc., an add-on to United Central Industrial Supply Company, L.L.C.-a platform company it purchased in August 2004 from Code Hennessy & Simmons L.L.C. with its $750 million Riverside Capital Appreciation Fund (2003).
The value of the transaction, which closed on July 1, was not revealed. However, Riverside did say that the firm used existing balance sheet capacity to make the purchase and thus financed it through senior debt alone. “The company is doing so well, we were able to do it with 100% debt,” Riverside Partner Andrew Strauss said. United Central’s existing lenders, Antares Leveraged Capital and GE Capital, provided the senior debt financing.
“United Central is a full-line supplier to coal mines of everything a coal mine might need in terms of consumable supplies, and management had identified electrical cable as an attractive area to pursue,” said Jeff Goodrich, the director of portfolio management and analysis at Riverside.
A&C’s ties to General Cable’s Anaconda brand and its service sector were particularly attractive to United Central. “They repair the cable and they [prepare] the cable to be used in a mine after they buy it from the manufacturer; so really, it’s a growth area for United Central,” Goodrich said. “It gets us into electric cable, gives us a good brand and a service component that we were lacking.”
Although A&C is going to be integrated completely into United Central, Riverside is not going to make management changes. “It will be operated basically as a separate branch within United Central,” Goodrich said.
Riverside plans to grow A&C by expanding its customer base to include United Central’s clientele. “With A&C, United Central is looking to leverage its customer relationships to help sell more electrical cable,” Goodrich added.
United Central had a long history of add-on deals as part of Code Hennessy’s portfolio. While this deal represents the company’s first add-on as a Riverside entity, it is the seventh such deal in the company’s lifetime.
According to Strauss, Riverside has ongoing plans to aggressively develop United Central through acquisition. “We would expect to do roughly one to two add-on acquisitions per year,” he said.
Outside of pursuing potential add-ons, however, Riverside’s longtime goals for United Central are fairly loose. “We’re relatively new into the investment,” Goodrich said of United Capital. “We’re going to own it until it achieves our investment objectives.”
Citigroup Geneva Capital Strategies advised A&C, while Jones Day served as the buyer’s legal counsel.
RCAF ’03, the fund used to acquire United Central, is currently about one-third invested, and like most buyout firms, Riverside is still actively shopping in the United States for deals. “We’re active,” Strauss said. “We will hit our objectives for the year.”