Rockwood Warms Up with Add-On –

Little known New York-based Rockwood Equity Partners LLC recently closed its first add-on acquisition of the Canada-based publicly traded Heater Division of Global Thermoelectric Inc. for its niche defense platform Hunter Manufacturing Co. Terms of the transaction were undisclosed. Huntington National Bank committed an undisclosed sum of senior debt financing for the deal. The bank was also an original investor in the acquisition of Hunter Manufacturing Co.

“The deal was a purchase of assets with payments over time based upon the seller meeting future targets,” said Brett Keith, a principal at Rockwood Equity. Keith added that the purchase price multiple was expected to be less than three times Ebitda.

Global Thermoelectric’s Heater Division fits in well with Hunter Manufacturing, which, in addition to its niche air filtration systems and diesel engine components for the defense and commercial industry, also has a niche heating division. Hunter generated in excess of $25 million in revenue for its fiscal year ending in June and expects the addition of its add-on acquisition to add approximately $7 million to its revenue.

“Our goal is to grow Hunter into a $75 million to $100 million company in the next five years,” Keith said. “We hope we can continue to do that by organic growth in our currently strong market as well as through strategic niche acquisitions. Presently, we’re looking at multiple add-on acquisitions in niche defensible markets.”

Rockwood Equity, which was formed in late 1999, doesn’t have a captive pool of capital. Rather, it raises its capital on a deal-by-deal basis from institutional investors such as Patricof & Co. Ventures Inc. and high net-worth individuals comprised of founding and senior partners from other private equity firms. “At present we don’t have plans for a third-party fund and instead are focused on getting deals done, but certainly that’s in our plans for the not-so-distant future,” Keith said.

Lower middle-market assets can be had for lower multiples than their assets in the larger end of the market, Keith said, adding that the types of companies the firm looks at are purchases from an exiting entrepreneur who “perhaps didn’t have the capability as a manager and CEO to take that company to the next level.” However, current tumultuous market conditions are not lost in the lower middle market. “We’ve seen the quantity and quality of deals slow down,” Keith said.

Rockwood Equity currently employs only two principals, Keith and Owen Calligan, and has no plans of taking on additional personnel at present.