Automatic Bar Controls (ABC) has been passed along from private equity firm to private equity firm four times. Perhaps that’s because it’s one of the more enjoyable due diligence assignments buyout pros come across.
Headquartered in Vacaville, Calif., ABC makes hand-held beverage dispensers for restaurants, bars and taverns. The company, with a worldwide marketshare of roughly 90%, was most recently passed from American Capital Strategies to Windjammer Capital Investors, which acquired it in a transaction valued at $59 million. Harris Williams & Co. acted as the sell-side advisor in the deal.
According to Harris Williams’ Patrick Crocker, a director at the firm, it is likely that ABC appealed to Windjammer because of “the combination of a very stable and solid core business that is very profitable and has a very high margin.”
Windjammer became aware of ABC’s sale through Harris Williams, and, according to Windjammer Managing Principal and Chairman Bob Bartholomew, the deal was initially shopped to the firm as a minority investment.
Bartholomew said that ABC had received higher offers, but came back to Windjammer at a lower price and agreed to a control investment by the firm. Crocker noted that the capital structure of Windjammer’s bid, in which the firm took on the sub-debt and the equity, likely played a role in it walking away the winner, and added that there was also a good cultural and personality fit between the two parties.
Antares Capital Corp. was the lead lender on the senior debt, providing roughly $29 million for the deal. In total, Windjammer contributed $9 million in sub-debt, and teamed up with management to provide $11 million in common and preferred equity. Windjammer used its Mezzanine and Equity Fund II, a 1999, $337 million fund, which, after this deal, is almost fully invested with reserves for add-ons.
“The goal here is to expand into Western Europe, to promote their new products and to take some of their existing production and move it offshore,” said Bartholomew. “That, combined with the rapid de-leveraging of the company should provide a very attractive rate of return for what I would describe as a near monopoly business.”
According to Bartholomew, ABC is developing some products that will cross over into new markets.
“This company has been developing these new products for a while, and we think that it is very well-positioned… we are expecting that over the next several years these products will grow fairly rapidly,” said Bartholomew.
There are no exit plans for the company yet, and, according to Bartholomew, Windjammer is planning to be a long-term investor.
“We are planning to…help the company grow, become a bit more efficient from a production perspective and, at that particular point down the road, we’ll sit down and think about what our exit plans will be,” he said.
Crocker noted that in each of the four sales ABC has gone through, the buyer has been a private equity firm, and the CEO, Rick Martindale, has rolled a portion of equity into each deal. American Capital acquired the business in 2002, in a $35.5 million acquisition, while TCW Capital bought out the business in 1994. Crocker added that every investor in this company has made money off it.
“It is an interesting reflection of what is happening in the buyout industry,” said Crocker.