Private equity firm Sun Capital Partners has just acquired its fourth company since the start of the year, this time in the beleaguered furniture industry, buying High Point, N.C.-based Lexington Home Brands.
Lexington’s current management team also participated with the Boca Raton, Fla., firm in the deal. Jason Niemark, vice president of Sun Capital, declined to state the purchase amount, though Sun Capital normally looks for deals under $200 million, and always takes majority stakes. Harris Williams was the investment banker on the transaction.
Lexington has lost money for the past three years, including $40 million in 2001 alone. This wasn’t daunting for turnaround specialist Sun Capital, however, as it seeks out corporate orphans and under-performing companies.
“Last year was a tough year for everybody, especially in the furniture business,” said Niemark. And in Lexington’s case, “everything started coming together at the same time,” including the recession, the company’s excessive cost structure and that Lexington was part of the Lifestyle Furnishings International Ltd. family, which is doing a controlled liquidation of all its businesses.
According to Niemark, the business also had several positive factors that made it attractive to his firm, including its management team, customer base, franchise value and brand names.
Niemark said the management team understands the furniture business and the licensing market. In terms of brand names, Lexington has Nautica Home, Bob Timberlake, Susan Sargent and Waverly, among others.
Going forward, Sun Capital would like to make sure the company’s on stable footing with regard to the turnaround strategy, and that the cost structure is in line with the revenue base.
“Once we’re comfortable with those initiatives, we want to make sure the company’s profitable,” said Niemark, adding that his firm, whose other portfolio companies include paper products, dye and siding manufacturing, usually holds a portfolio company for two to four years.
“Most private equity firms like companies with good records and nice earnings; they’re looking for the typical 25%-to-30% returns,” he said. “We’re looking for something much higher than that.”
In other Sun Capital-related news, GE Supply, a business unit of General Electric Co., has won the bankruptcy auction for the assets of Questron Technology Inc. with an $89.2 million bid. Sun Capital Partners bid to acquire Questron in February. The deal between the Boca Raton, Fla.-based inventory services company and GE Capital was approved in bankruptcy court on April 16.
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