Turnaround specialist Sun Capital Partners Inc. is on the move again. The Boca Raton, Fla.-based firm has just acquired its fifth company since early January, BMK Inc., a general merchandise distributor, for nearly $70 million.
Seventy million is the gross purchase price, and is subject to a working capital adjustment. Sun Capital made the deal through its $200 million Sun Capital Partners II LP, which is about one quarter invested.
Of its new portfolio company, Jason Neimark, vice president of Sun Capital, thinks his firm can create a significant amount of value within a short period of time.
“The company is the largest general merchandiser for grocery and drug stores in the country,” he said. “[It has] a very good brand name and franchise value. [It] also has an exceptional management team. And there are a lot of opportunities for growth and integration and rationalization of the business, which we believe is not something that’s going to take an extremely long time.” BMK has approximately $400 million in annual revenues.
Sun Capital entered into a sale agreement to purchase BMK in April, which was subject to the submission of competing bids. An auction was conducted where, as a result of competitive bidding, Sun’s initial bid of $55 million was ultimately increased by nearly $15 million. A U.S. Bankruptcy Court judge then approved the Sun transaction, which closed the end of last May.
Neimark said a company has to have a number one or two market position and good franchise value for his firm to be interested. “So they’re good companies that have run into a bad situation,” he said.
What occurred in BMK’s case, according to Neimark, was “The management team was unable to keep up with the equity sponsor in terms of the equity sponsor making acquisitions and leveraging up the company,” he said. It purchased 16 companies within six years, all with debt, giving BMK “more than $120 million in senoir and subordinated debt.”
“Rollups happen and rollups go bust,” said Neimark. However, he added, Sun Capital is keeping the management team.
“We have a lot of confidence in them. We don’t think the reason the company faltered was their fault. The equity sponsor made the decisions to do the acquisitions, so they were put in a difficult position, and I know that their equity sponsor was not an operational equity sponsor, it was a financial equity sponsor, which means they probably didn’t provide them with the support and direction needed.”
Sun Capital plans to first integrate the remaining divisions and to rationalize the cost structure. Eventually BMK will expand from the Western market into the Eastern and Midwestern markets, which Neimark described as “very ripe markets for us to grow in.
“Some of our customers are consolidating and looking for a national supplier, and we are the only true national supplier within this arena. There’s not another company that comes close to us when it comes to being this size,” he said.
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