Wind Point Launches Railway Services Platform

Target: RailWorks Corp

Price: Undisclosed

Sponsor: Wind Point Partners

Seller: MatlinPaterson Global Opportunities Partners

Financial Advisor: Imperial Capital

Legal Counsel: Sponsor: Winston & Strawn LLP; Seller: Whalen LLP

In a bid to take part in the much-needed refurbishment of North America’s outdated railroads, Wind Point Partners has acquired RailWorks Corp., provider of railroad construction services, from MatlinPaterson Global Opportunities Partners.

The deal also marks an ironic inflexion point for RailWorks, which MatlinPaterson bought out of bankruptcy in 2002. RailWorks fell into distress after a roll-up plan made a disaster of the company’s books in the 1990s. Now Wind Point plans to breathe new life into RailWorks’s roll-up strategy, albeit in a more limited capacity.

“We will be most interested in acquisitions that help us expand the track side of the business into new regions,” Wind Point Principal Sarah Kneisel told Buyouts. “There are a lot of regional track-services companies in the U.S. and Canada.”

With annual revenue of roughly $340 million, New York-based RailWorks provides construction services for railroads and transit authorities. The employer of about 1,300 also takes on smaller-scale projects for commercial and industrial companies. Recent RailWorks projects include the construction and rehabilitation of track along CSX Transportation’s Chicago-Florida rail corridor, and renovations to AirTrain, the railed shuttle system that operates around New York’s John F. Kennedy International Airport.

Wind Point, with offices in Chicago and Southfield, Mich., would not disclose how much it paid for RailWorks. Typical Wind Point deals involve equity investments of between $20 million and $70 million.

A decade ago, RailWorks’s balance sheet took a beating as the result of a failed roll-up plan in the late 1990s. The company spent too much, too quickly and was hit hard by a slowdown in transit spending. It filed for bankruptcy protection in the fall of 2001, reporting assets of $569.6 million and liabilities of $523.2 million.

Five years, several management changes and one recapitalization later, Wind Point believes the company is on track to benefit from a number of timely trends in the rail industry. “A big driver is that the aging infrastructure has spurred both companies and the government to continue investing in existing track,” Kneisel said.

Moreover, Dallas, Denver, Salt Lake City and Seattle and other cities are encouraging the use of mass transit alternatives such as light rail and commuter trains, which likely will lead to expansion and maintenance projects. RailWorks can take advantage of this trend though its more than 30 offices throughout the United States and Canada, Kneisel said.

Other customers include power plants and chemical companies, which depend on the transportation of copious amounts of resources. In particular, Kneisel noted, RailWorks is benefiting from production increases of corn-based ethanol, an increasingly common gasoline additive. Many ethanol producers rely on rail to ship their harvested corn from the field to the refinery. From there, the finished product must then be transported again to the buyers of the fuel, often by rail or on barges.

Following the buyout, RailWorks senior management will remain in place—unusual for Wind Point, which typically appoints a new CEO to each company it acquires. RailWorks President and CEO Jeffrey Levy, who has run the company since 2005, had earlier in his career teamed up with Wind Point to pursue investment opportunities. No deals resulted, but the two parties kept in touch, and when MatlinPaterson expressed an interest in selling RailWorks, Levy gave Wind Point a heads up, Kneisel said.

Los Angeles-based investment bank Imperial Capital ran the auction for RailWorks. Equity for the deal came from Wind Point Partners VI LP, a $700 million vehicle closed in 2005. Debt financing came from Audax Mezzanine, BMO Capital Markets, Fifth Third Bank and LaSalle Bank.—A.N.