Wind Point Hammers Out Construction Buy –

The consolidation that has occurred among the major homebuilders has changed the way the housing industry operates. To capitalize on this shift in the marketplace, Wind Point Partners acquired a control stake in United Subcontractors, buying the company in a $275 million transaction that closed late October.

“There are some fantastic growth opportunities here,” Wind Point Principal Nathan Brown said. “As the homebuilders have gotten larger and larger, there’s a huge need among them to have larger and better capitalized subcontractors that can bundle products and services and have the ability to scale themselves to the job.”

United Subcontractors, Inc. (USI), as the name implies, is a subcontractor with a number of different focuses. The company’s chief concentration is installing insulation, but USI also installs shelves, fireplaces, windows, glass and fireproofing, and also participates in other areas. According to Moody’s Investors Service, USI should put up around $280 million in revenue in 2004, and in the past 12 months the company has generated more than $50 million of pro forma EBITDA. The business is not yet operating on a national scale, but does have operations in Florida, Arizona, Colorado, New Jersey, Maryland, Washington and other locations.

While Wind Point anticipates organic growth due to the changing dynamics in the industry, the firm will also try to goose that by expanding the company’s reach across North America and offering more products and services. That in turn will make the company more appealing to the ever-expanding major homebuilders that USI targets, and at the same time provide more avenues through which to increase sales. Wind Point has already identified some potential acquisitions that could bolster certain areas of the business as well.

Another factor that could fuel the investment is the continued health of the housing market, which is being buoyed by low mortgage rates. However, this trend is not necessarily part of Wind Point’s investment thesis. “We think the housing market will stay strong, but we’re not forecasting any additional growth there. We expect to grow USI by expanding the number of products offered to its existing customers, expanding the company’s geographies and increasing the sales productivity. Plus, this market is very large and very fragmented, so we will explore potential acquisitions,” Brown said.

Wind Point acquired USI outside of an auction in a negotiated transaction with the company, although the selling shareholders had held conversations with other interested parties. Green Manning & Bunch was hired by USI as an advisor for the sale.

Of the $275 million purchase price, $72 million will take the form of equity provided by Wind Point, company management and Teachers’ Private Capital. Wind Point is the control stake holder in the business. The balance will be covered with senior debt arranged by Royal Bank of Scotland and Citigroup Global Markets and a mezzanine tranche covered by Northwestern Mutual Life and Citigroup Mezzanine Partners.

As part of the transaction, Wind Point has installed Honeywell-vet Kevin Gilligan as chief executive. Previously, Gilligan served as president and CEO of Honeywell’s Automation and Control Solutions Group, and at one point was the president of the company’s Home and Building Controls group. He succeeded David Nipper as USI boss, and Nipper will now serve on the board.

The equity for Wind Point came out of the firm’s $476 million Wind Point Partners V fund, which is now roughly 75% committed. Sources have indicated that Wind Point is now eyeing a follow-up fund, although no information has yet to be made public as to the fund’s size or when Wind Point will begin fund raising.