Wellspring Capital Management closed two deals this month, buying Walters Industries subsidiary JW Aluminum in a $125 million transaction and Edwin Watts Golf, a retailer of golf equipment and apparel. Terms of the Edwin Watts deal were not disclosed.
JW Aluminum, based in Mount Holly, S.C., is a manufacturer of flat-rolled aluminum products, with more than $200 million in revenue. “We’re looking at this as a great opportunity to grow this asset through acquisitions,” said Wellspring Partner William Dawson, Jr.
Wellspring is financing the transaction with a blend of senior debt and mezzanine, which is being provided by GE Capital and Oaktree Capital Management. “The deal is conservatively leveraged,” Dawson said, “with a debt-to-EBITDA ratio of about 3.5 times.”
To grow the investment, Wellspring intends to take advantage of the shakeout going on among the larger players in the aluminum industry. “There’s been a lot of consolidation among the bigger players, and as a result they’ve been shedding assets,” Dawson said. “They’re looking to invest capital in larger, more efficient [areas], and are divesting the smaller, less efficient niche players, such as JW.”
Through acquisitions, Wellspring intends to double the size of JW in the next three to five years. The firm will be targeting the smaller niche players in the sector, which Dawson described as packaging, heating, air conditioning and building product applications, such as gutters. Additionally, Wellspring is hoping that the general economic conditions continue to gain traction. “Given where the dollar is right now, targeting the manufacturing sector is not a bad play today. JW is a regional business that is not threatened by Asian imports,” said Dawson.
In addition to purchasing JW Aluminum, Wellspring also purchased Edwin Watts Golf.
“The thesis behind this deal was that because the company mails 14 million catalogs a year, it has a built-in marketing umbrella from which to expand its store base,” said Greg Feldman, managing partner with Wellspring. He added that the firm would look to grow the store base through both building new locations and acquiring competitive golf retailers.
Feldman said Wellspring financed the transaction with a mix of bank debt from Amsouth and SunTrust Bank and subordinated debt from Churchill Capital and Gleacher Partners.
While golf-related businesses are generally impacted by the economy, Wellspring feels Edwin Watts is guarded somewhat from the fluctuations. “Golf tends to wax and wane with the economy since it’s an expensive hobby, but this business caters to the avid golfer, so our core customers are golfers who routinely upgrade their equipment as new technology comes into the market,” Feldman said.
Additionally, he expects golf courses to bring down their greens fees amid a competitive market, which could increase play among the less ardent golfers. “Golf courses have been wildly overbuilt, and that will have the impact of making the public courses decrease their greens fees,” Feldman added.
Wellspring Capital used its $675 million Wellspring Capital Partners III fund for both transactions. The fund will be roughly one-third invested by the end of the year.