Target: Magnum Tunneling & Boring
Sponsor: Momentum Capital Partners
Financial Adviser: Seller: Focus Strategies LLC
Legal Adviser: Sponsor: Snell Wylie Tibbals PC
The Fort Worth, Texas-based lower mid-market buyout shop’s plan is to build the business up by extending its reach beyond Texas, to Louisiana, Oklahoma and other nearby states, possibly through add-on acquisitions. The firm would then look to sell the company to a large, strategic contractor within five to six years. Focus Strategies LLC, an Austin, Texas-based investment bank, coordinated the sale for the seller. Whitney Bank, a New Orleans-based bank with a big Houston presence, provided less than $5 million in financing, which consisted of equipment financing, real estate notes, and a line of credit.
Magnum Tunneling’s clients include contractors—such as EP Brady Inc. and Texas Sterling Construction Co—that serve local governments in Texas. Jon Vanderploeg, a Momentum Capital principal, told Buyouts that comments by President-elect Barack Obama about the need for more federal spending on infrastructure to stimulate the economy could eventually translate into more contracts for the portfolio company.
Momentum Capital seeks to invest $3 million to $8 million for majority stakes in companies across a variety of industries, while avoiding real estate project financing, venture capital-style investments, and vice-related investments. The firm has invested slightly more than $20 million since its inception in 2004. Its principals invest their own money and that of a group of wealthy individuals and families who commit a certain amount of capital each year, which allows Momentum Capital to invest as much as $15 million per year. Investors can stop their commitments if they provide one year of notice. Momentum Capital charges less than 20 percent in performance fees; management fees are set based on an annual budget that its investors approve.
There is some disagreement among Momentum Capital’s principals about the direction the firm should take. One or two of the principals would like to raise a larger, more traditional institutional fund, said Vanderploeg, who prefers the current strategy. Vanderploeg, along with fellow principals Jim Anderson and Derrick Varnell, started the firm. Another principal, whom Vanderploeg declined to name, has since left. Scott Cook, principal, joined the firm in April 2006.