Most people remember the scene in Toy Story when the three-eyed alien plush toys are picked up in a toy vending machine, saying, “I have been chosen, farewell my friends, I go on to a better place,” at the Pizza Planet arcade.
If it had been real, that coin-operated vending machine could easily have been owned by American Coin Merchandising Inc., which owns about 13,000 coin-operated vending machines across the U.S., more than any other supplier on a national basis, according to Bill Dawson, a senior managing partner at Wellspring Capital Management LLC, which, along with Knightsbridge Holdings LLC, has jointly acquired American Coin Merchandising in a transaction valued at $125 million.
Knightsbridge Holdings LLC is a seven-month-old, New York-based private investment firm specializing in leveraged acquisitions and private equity investments. The co-sponsored investment represents its first buyout.
American Coin Merchandising “is the classic corporate orphan,” said Dawson. “It’s an under-valued middle-market company.” Wellspring made the investment through the Wellspring Capital Partners II L.P. fund, which was raised in 1998 and is worth about $300 million, with “less than $100 million left to invest,” said Dawson.
The agreement provides that Wellspring and Knightsbridge (through the corporation they formed to make the acquisition) will pay $8.50 in cash for each outstanding share of the company’s common stock, and that the company’s outstanding stock options will be converted into the right to receive a cash payment equal to the value of such options, according to a statement. The purchase price represents approximately a 42% premium over the closing market price of the company’s common stock on Friday, Sept. 7, 2001. The aggregate value of the transaction, including the amount of debt to be assumed, is approximately $125 million. The acquisition group has secured financing commitments, subject to customary conditions, to provide the aggregate funds necessary to effect the transaction, which was structured as a cash merger.
Dawson said his firm plans to take the company private.
“Right now market conditions are unfavorable in general,” he said, but over five years, “we look to double the business to make it much more attractive for a possible IPO.” American Coin has revenue of $140 million, he said, and Ebitda of $25 million. He added a strategic buyer might also be possible as an exit scenario.
“Any amusement-related company,” he said.
Pericles Navab, founder and partner of Knightsbridge, said his firm is focused on operationally oriented LBOs in the consumer goods, retail and telecommunications sectors, industries where firm partners have expertise.
Navab, a former partner of Arena Capital Partners, said, “Bill [Dawson] is a long-time friend. Wellspring makes a good partner because they also have a hands-on, management-oriented approach.”
The management at American Coin was one reason Navab decided to invest in the company.
“They have truly a long-term management team,” he said. “They’ve been there 12 years.”
The other major reason for Knightsbridge’s investment choice: “In a volatile environment, we love businesses that are stable and an entrenched franchise, that are clear market or industry leaders in true cash-flow businesses. When you combine those factors you make money in any economic environment,” over the long run, he said.
Although American Coin is already the “only national player” in this arena with accounts at giant retailers Wal-Mart (which represents about 37% of sales), and diner chain Denny’s, Dawson said he foresees expansion in both new accounts and further penetration of those in existence.
American Coin Merchandising is based in Boulder, Colo., and its franchisees own and operate more than 26,000 coin-operated amusement vending machines throughout the United States in supermarkets, mass merchandisers, bowling centers, bingo halls, bars, restaurants, warehouse clubs and similar locations, which dispense plush toys, watches, jewelry, novelties and other items. The company also operates bulk vending machines (gum balls, toys), kiddy rides and video games.
Wellspring Capital Management LLC is a New York-based private equity firm with about $350 million under management. The firm is focused on acquiring companies where it can realize substantial value by contributing management expertise, innovative operating and financing strategies and capital. Among its other portfolio companies is The Hockey Company, Montreal, Quebec, which is a leading manufacturer and marketer of ice and roller hockey skates, and reputedly “the most widely recognized brand in the hockey industry.” The company also owns Paragon Trade Brands Inc., the leading manufacturer of private label infant disposable diapers in the United States and Canada. And Brook Mays Music Company, which was founded in 1901 and is the largest full-line musical instrument retailer in the U.S., according to Wellspring.