All posts by Kastle Olson

28Jan/16

Odyssey Investment Partners Completes Acquisition of Integro

New York, November 2, 2015

Odyssey Investment Partners, LLC today announced that an affiliate has completed its acquisition of Integro Ltd., an international insurance brokerage and risk management firm. Financial details of the investment were not disclosed.

Founded in 2005, Integro has evolved to become a leading specialty insurance brokerage firm with a significant global presence. In recent years, Integro has been actively building its specialty areas, including Aviation; Benefits Consulting; Entertainment; Financial Institutions; Healthcare; Marine/Energy; Professional Services;  Real Estate/Construction; Reinsurance; Retail/Consumer Services; and Trade & Logistics/Transportation in North America, and globally.

Integro has catapulted to the eighth largest private broker in the United States in terms of property/casualty written premium, according to Insurance Journal. Integro serves clients in over 125 countries from more than 40 offices across the globe.

Jeffrey McKibben, a Managing Principal of Odyssey Investment Partners, said, “We are excited to complete this transaction and to build on Integro’s exceptional success to date in the brokerage and risk management sectors. We look forward to our new partnership with the Integro management team and to providing the resources and support needed to achieve continued success.”

The Integro management team led by William Goldstein, John Sutton, Toby Humphreys and Marc Kunney remains in place, and certain members of the management team and other employees remain shareholders in the company.

Mr. Goldstein, previously President of Integro, has been named Chief Executive Officer. He said, “We are thrilled to be aligning with Odyssey, an active partner that will add value in so many initiatives, including refining strategic direction, accelerating acquisitions, improving financing, and supporting our deep commitment to innovation and client service.”

Sandler O’Neill + Partners, L.P. served as financial advisor and Latham & Watkins LLP served as legal counsel to Odyssey in the transaction. Evercore served as financial advisor and Cahill, Gordon & Reindel, and Proskauer Rose LLP served as legal counsel to Integro.

About Integro Integro is an insurance brokerage and risk management firm. Clients credit Integro’s superior technical abilities and creative, collaborative work style for securing superior program results and pricing. The firm’s acknowledged capabilities in brokerage, risk analytics and claims are rewriting industry standards for service and quality. Launched in 2005, Integro and its family of specialty insurance and reinsurance companies, some having served clients for more than 150 years, operate from offices in the United States, Canada, Bermuda and the United Kingdom. Its U.S. headquarters is located at 1 State Street Plaza, 9th Floor, New York, NY 10004. 877.688.8701. www.integrogroup.com

About Odyssey Investment Partners Odyssey Investment Partners, LLC, with offices in New York and Los Angeles, is a leading private equity investment firm with a 20+ year history of partnering with skilled managers to transform middle-market companies into more efficient and diversified businesses with strong growth profiles. Odyssey makes majority controlled investments in industries with a long-term positive outlook and favorable secular trends. For further information about Odyssey Investment Partners, LLC, please visit www.odysseyinvestment.com.

Contact

For Integro:
Betsy Van Alstyne
Integro
(973) 820-1469

For Odyssey Investment Partners:
Mark Semer
Kekst and Company
(212) 521-4800

www.integrogroup.com

10Sep/15

Cave Creek Capital Closes Investment in Transnational Foods

September 10, 2015

Cave Creek Capital (“CCCM”) is pleased to announce its investment in Transnational Foods LLC (“Transnational”), a leading provider of globally sourced, competitively priced branded and private label food products. Transnational services several major national food retailers including Wal-Mart, Dollar Stores and Supermarkets. Transnational Foods was one of the first to develop cost-effective procurement programs with major retailers, enabling them to expand their in-house and private label food offerings by accessing international supply partners in 25 different countries. Their diverse and long standing global relationships allow them to optimize price, timing of delivery and product mix for major retailers, supplying over 400 SKU’s to 30,000 stores nationally in categories such as canned fruits and vegetables, seafood, pasta, olive oil and lemon juice.

CCCM’s recapitalization provided growth capital and funded a repurchase of shares from minority shareholders in conjunction with a strong team of investment partners, including Stewart Capital, C3 Capital and Eagle Capital. “We are pleased to have a group of committed partners to help our company grow to the next level.” states Marcelo Young, President of Transnational. “Our new partners can provide the capital necessary to expand our personnel, product lines and add acquisitions for growth”.

Cave Creek Capital has an extensive track record of successful investments where Founders can gain personal liquidity, add growth capital and continue to run their companies. G. Kevin Fechtmeyer, CCCM Managing Partner, added; “We can offer the best of a Family Office combined with an institutional investor’s resources. Our average portfolio company has grown over 300% during our investment period. We look forward to Marcelo’s team at Transnational being our partners for many years.”

www.transnationalfoods.com

09Sep/15

QK Holdings Case Study

Leading Brand Resurgence

Overview
  • QK founded as Denny’s franchisee by Robbie Qualls and Doug Koch in 1993 with their first restaurant in Holbrook, AZ
  • QK purchases 9 units in Oregon, Dennis Ekstrom joins company as senior executive in 1995
  • QK diversifies into CSR in 2002 with an acquisition of Del Taco units in New Mexico
  • QK expands into 9 states with 88 restaurants by 2011, becoming the largest Denny’s franchisee in the U.S. with nearly $100MM of revenue and the strongest operating team in the system
  • Robbie Qualls seeks to retire and cash out in 2013 while Doug Koch wants to continue to expand the business
  • They select Cave Creek Capital as a 50% partner in a $43MM leveraged recapitalization
  • Highly complex deal closed with 79 separate LLC’s and three different corporate entities combined in hybrid stock/asset transaction; met liquidity and tax needs of the three founders
  • Founders, Doug Koch and Dennis Ekstrom receive partial liquidity for their shares and continue as senior management while Robbie Qualls remains as Vice Chairman of the Board
CCCM4878_MSP_3159

Denny's_logo CCCM4878_MSP_3278

Results
  • QK restaurant base grows by 15 units and Denny’s brand surges under new corporate leadership, with run rate revenues growing nearly 30% within two years
  • Record comp store growth of nearly 10% for 2015
  • EBITDA grows almost 50% since the aquisition
  • Substantial progress in building infrastructure; CFO hired, first audit and consolidated tax return
  • Restaurant industry in general and Denny’s, in particular, continues strong resurgence in performance and valuations under CEO, Jon Miller

 

09Sep/15

Transnational Case Study

Attracting Blue Chip Clients

Overview
  • Marcelo Young, executive for a multi-national food company based in Argentina, identifies need for value-priced brand-equivalent food items by U.S retailers
  • Transnational founded by Marcelo Young in Miami in 2002 and gains rapid penetration in Dollar Store channel just as they begin expanding food offerings
  • During Recession of 2008-09, U.S retailers expand value brand offerings and TNF is well positioned to grow as consumers shift towards value priced private label/National Brand Equivalents
  • TNF adds WalMart as a customer in 2010 and grows rapidly to 200 SKU’s
  • Marcelo Young wins E&Y Entrepreneur of the Year Award in 2015 as Company nearly doubles sales in four years
  • Management seeks capital partner to expand board, provide liquidity to shareholders and strengthen balance sheet for further growth
  • TNF selects Cave Creek Capital to lead majority recapitalization based on its track record of success in Founder Led Growth Recaps

 

Results
  • Transaction closes in July 2015
  • Management cashes out minority shareholders, gains personal liquidity and establishes a larger ownership stake for the management team
  • Strategic Plan targets 200% sales growth in five years through both organic growth and acquisitions

 

 

16Jun/15

John Hines Joins Bastech

January 2015

CCCM John HinesJohn Hines, VP Commercial Development Mining. John has over 29 years of experience in the chemical processing industry with last 11 years focused on chemicals for the mining industry. Prior to joining Bastech in 2014, John worked briefly as the Technical Director, Industrial Minerals for SNF FloMin and for Georgia-Pacific Chemicals LLC for 22 years in a number of different capacities including Senior Scientist, Program Manager, R&D Manager and Business Manager. He has co-authored over seventy patents, patent applications, and technical papers. While at Georgia-Pacific Chemicals, John’s project areas primarily included flotation reagents for mining, oilfield chemicals, dust control reagents, freeze conditioners, adhesives, composite materials, and concrete admixtures. From 1985 to 1992, John worked as an R&D Chemist for Milliken Chemicals, where he focused primarily on polymeric colorants and light stabilizers. John holds a PhD in Physical Organic Chemistry from The University of Georgia and a BA in Chemistry from Eckerd College.

 

Source: Bastech

09Jun/15

Integro Acquires UK’s Kite Warren & Wilson Marine Specialists

New York and London (May 13, 2015) – International insurance broker and risk management firm Integro Ltd. today announced its acquisition of Kite Warren & Wilson Ltd, a London-based insurance brokerage with recognized specialties in marine hull & liability coverage and financial lines.  Financial considerations of the transaction have not been disclosed.

Kite Warren & Wilson (KWW) was formed in 1999. With marine coverage a mainstay as a core offering, KWW has since expanded into the non-marine, financial and professional risk, and energy fields and today provides a broad range of services in retail and wholesale broking.

“Kite Warren & Wilson covers all types of marine transport, and we are delighted in particular at the extraordinary level of expertise in marine hull coverage our new colleagues add to Integro’s extensive marine capabilities,” said Toby Humphreys, Integro’s London chairman. “The KWW team, led by co-founders Tom Wilson and Mark Warren, also enhances Integro’s financial and professional lines capabilities in the UK marketplace.” KWW’s Chairman, Ray Kite, is retiring after 57 years in the industry.

Wilson, a managing principal, sees significant client benefit in the combination of forces: “We were attracted to Integro’s model of bringing together specialty broking operations; it made for a natural fit. What’s more, we look forward to offering our existing clients the broad range of quality expertise and services above and beyond their marine coverage needs that the Integro group provides.  We also relish the opportunity to help drive international growth at this exciting time in Integro’s development.”

In addition to supplementing the firm’s global marine practice offerings, Integro President William Goldstein said the Kite Warren & Wilson acquisition will play an important role in expanding Integro’s global marine capabilities and enhancing service to Integro’s large Marine oriented retail clients. In addition, KWW enjoys a significant presence in Asia thus further expanding Integro’s international footprint.

Integro has been an active acquirer of specialist firms across its platform as it continues to establish itself as a provider of specialty solutions in the insurance brokerage space. Over the past year, Integro added NPA Insurance Broking Group (April 2015); Howard Global Insurance Services (December 2014); Ventura Insurance Brokerage (December 2014); Dominium (November 2014), Stonehouse Conseillers Ltd (August 2014); and Richard Thacker & Company Limited (April 2014).

Integro celebrated its tenth anniversary May 6 and President Goldstein is focused on the firm’s future.  “Kite Warren & Wilson and other recent acquisitions underscore our commitment to being a leading international specialty brokerage firm,” he said.

Source: Integro

09Jun/15

The VMC Group Completes Major Recapitalization and Two Acquisitions

May 19, 2015

The VMC Group (“VMC”), a world leader in innovative shock, seismic, vibration and engineering services, today announced a $32 million minority recapitalization for purposes of refinancing its existing senior and junior debt, and preferred equity securities. Additionally, the Company announced two new acquisitions in furtherance of its plan to become the preeminent seismic and vibration isolation business in the world. VMC secured a new credit facility from East West Bank and attracted Seacoast Capital as a new minority partner and preferred shareholder. VMC acquired Advanced Antivibration Components (AAC) from Designatronics, located in New Hyde Park, NY, as well as a majority control position in Dynamic Certification Laboratories (DCL) of Reno, NV. The recapitalization and acquisitions closed simultaneously on May 8, 2015.

“We are pleased to have completed a deal of this magnitude. It is a tribute to our people and Company to be able to complete these highly complex transactions in one closing,” states John Wilson, Jr., Chief Executive Officer of The VMC Group. “We are excited to have East West and Seacoast as our new partners. They provided the capital necessary to support the acquisitions of AAC and DCL which will accelerate our next stage of growth, specifically in web-based B to B sales and the expansion of our testing and measurements business. East West was a reliable and diligent partner throughout the entire process and Seacoast moved decisively to complete the transaction within the targeted terms and timeframe. These deals, in addition to ramping up our expansion, strengthen our balance sheet and provide capital for future acquisitions. East West and Seacoast share our sense of urgency to execute on our strategy and continue on our quest to become a great company.”

Source: The VMC Group

18Dec/14

NewStar Leads Financing for Integro

BOSTON, Dec. 10, 2014 (GLOBE NEWSWIRE) — NewStar Financial, Inc. (Nasdaq:NEWS), a specialized commercial finance company, announced today that it served as Lead Arranger and Administrative Agent for Senior Credit Facilities provided to Integro Ltd. (“Integro” or the “Company”), a leading specialty insurance brokerage and risk management firm. The credit facilities were comprised of a revolving line of credit, which was undrawn at closing, and a combination of funded and delayed draw term loans. The transaction also included an accordion feature, which could significantly increase the size of the facilities at the Company’s request subject to lender approval.

The initial proceeds from the financing were used to refinance existing debt with significant undrawn borrowing capacity remaining available to support the Company’s future funding needs related to its growth strategy.

“As we approach our tenth anniversary, Integro is poised for exceptional growth both organic and through continued acquisition of specialty businesses,” said President William Goldstein. “The relationship with NewStar ensures that we have ready access to the resources to deliver on a growth strategy that includes an expanded geographic footprint and the addition of new products and specialties to Integro.”

Launched in 2005, Integro has grown to become one of the top 25 brokers in the U.S., providing insurance products and services to a wide range of clients – from Fortune 500 companies to high net worth individuals. The Company’s core product offerings include traditional property and casualty, marine, personal, employee benefits and aviation insurance lines, as well as reinsurance products. Integro is organized into client-centric divisions focused on companies with activities in key markets and a variety of industries in which it specializes, including healthcare, media/entertainment, hospitality, technology, construction, food and consumer products, real estate, aviation, professional services and waste management.

Headquartered in New York City, the company operates from offices across the United States, Canada, Bermuda and the United Kingdom.

“We are very excited by the opportunity to back one of the leading independent insurance brokerag firms in the world as it continues to execute its strategic growth plan.  With the ability to provide financing solutions up to $300 million, we believe that we will be able to partner with Integro for many years to come as they continue to grow the business organically and through acquisitions,” said Jason Wendorf, a senior banker at NewStar. The deal team for the transaction included Robert Milordi, Kevin Mulcahy and Marty Loew.

About NewStar Financial, Inc.:

NewStar Financial (Nasdaq:NEWS) is a specialized commercial finance company focused on meeting the complex financing needs of companies and private investors in the middle market. The Company specializes in providing senior secured debt financing options to mid-sized companies to fund working capital, growth strategies, acquisition and recapitalization, as well as, equipment purchases. NewStar originates loans and leases directly through a team of experienced, senior bankers and marketing officers organized around key industry and market segments. The Company targets ‘hold’ positions of up to $50 million and selectively underwrites or arranges larger transactions for syndication to other lenders.

NewStar is headquartered in Boston MA and has regional offices in Darien CT, Atlanta GA, Chicago IL, Dallas TX, Los Angeles CA, New York, NY, San Francisco CA, and Portland OR. For more detailed information, please visit our website at www.newstarfin.com.

Source: Nasdaq
18Nov/14

Dominium Becomes National Employee Benefit Consulting Practice For Global Risk Management Firm Integro

New York, NY & Atlanta, GA (November 10, 2014) – Integro Ltd., one of the world’s largest and fastest growing privately held insurance brokerage and risk management firms, has acquired Atlanta-based Dominium to lead its national employee benefit consulting practice. Joining Integro positions Dominium for rapid growth and complements Integro’s Property and Casualty success in the large complex risk market. The Dominium management team, led by CEO Scott Schanen and COO Jimmy Mills, will guide this large complex risk practice and will play a key role in formulating future growth plans for the combined companies.

“The employee benefits sector is crucial to our suite of corporate solutions, especially as we look to further enhance and leverage Integro’s leadership position in the management of risk. The combined knowledge and expertise of Dominium and Integro will ensure we deliver unique and sustainable solutions to managing the burgeoning cost of health care,” said William Goldstein, President of Integro. “The strategic approach, technical abilities and proven record of success of Dominium are a perfect fit with Integro’s vision and plans for future growth.”

Schanen and Mills will remain in their respective leadership positions, reporting directly to Goldstein. Each will also serve on Integro Ltd.’s Operations committee. According to Schanen, “Combining the Integro and Dominium brand further differentiates our employee benefits practice and facilitates the development of innovative strategies to rethink the management of healthcare, pharmacy, disability and workers’ compensation programs.”

Dominium was launched in 2007 under the belief that innovation in employee health and well-being programs can help companies maximize the power of their own performance. “Becoming part of the Integro organization enables us to leverage the resources and expertise of a large international firm while providing the client focused service of a boutique benefits consultancy; we continuously punch above our weight,” notes Mills. “Our combined expertise and talent will bring innovation and profit-oriented outcomes to the clients we serve.”

Dominium will maintain its successful brand and remain headquartered in Atlanta where it will support branch office growth into other major U.S. markets.

Source: Integro

28Jul/14

Is Private Equity Losing its Taste for Risk?

RiskimgPrivate Equity managers aren’t paid to be patient, they are paid to put money to work and they’ve never had more of it. With over $1 trillion of committed capital coming into 2014, you would think that risk taking would accelerate, but several factors seem to be pushing the industry in a surprising direction; away from risk.

Surplus Capital is driving valuations higher and returns lower

Valuations are approaching record levels for the first time since 2007 and rumor has it that projected equity returns are in the “mid-teens” for large, leveraged buyouts. This means that the average equity investment is projected to return 2 times their principal in 5 years (before any losses or expenses). That’s better than public equity returns but leaves little room for error.

Debt markets are frothy again

Valuations are being levitated by the abundance of debt financing available. Leverage multiples are now exceeding 5X ebitda, on average. This is ok if interest rates stay at historic lows but it can lead to intoxicating overconfidence on a dealmaker’s perceived risk profile. One General Partner at a major fund told us that he was fine going over 5X leverage on a $1 billion buyout. He paid more than 10X ebitda and hence the deal was “under 50% debt to total capitalization”. That seems like cold comfort since a higher level of debt heightens the risk to both the debt and equity holders, regardless of valuation.

RiskSubtitle

The cost of an investment mistake grows exponentially

Higher valuations and leverage magnify the impact of small changes in a deal, such as higher capital spending, loss of a customer, a rise in interest rates or multiple contraction upon exit. One or a combination of small changes in each of these can quickly crush the equity in a deal.

A single busted deal can put the “next fund” and its fees in jeopardy

If successful deals are projected to return about 15%, you can’t afford a hiccup. A loss on one or two deals in a portfolio can quickly bring the average return down close to or below the fund’s hurdle rate (generally 6-8%) and decimate the value of the GP’s carried interest. At current valuations, the likelihood of a large return from one deal (eg. 5X to 10X) to offset losses in the portfolio is greatly diminished. General Partners in large funds often make more in management fees than they do in carry. Hence, they are forced into “playing defense” in a low return environment; protecting that stream of management fees can become a dominant factor in deal selection, pricing and management.

All of these factors dampen a Company’s risk appetite

Historically, private companies were able to operate outside the spotlight of the public market and act more aggressively to pounce on opportunities. At today’s valuation and structures, the cost of increased R&D, acquisitions or expanding a sales force can become much more risky to fund. Large leveraged buyouts at high valuations can actually make management more risk averse. When banks have a say in funding these unexpected “opportunities”, covenant changes can be costly.

What does this mean for Entrepreneurs? Higher valuations and more choices sound like good news for Entrepreneurs but they need to do more careful homework on potential partners. Here’s what they need to know:

Funds will gravitate toward larger, more stable businesses with less risk but less upside where they can put more money to work. The private equity industry is now dominated by larger funds that prefer to “pay up for quality”. This implies investing at a higher valuation in a larger, more established business with steadier cash flows. This results in a lower, but more reliable investment return with less risk of loss. Higher risk deals for more volatile companies may need bigger discounts in valuation or have a harder time getting done.

Private Equity firms may become more bureaucratic

Success in Private Equity seems to result in bigger and bigger funds. The industry has grown over 1000% in the last 20 years and fund sizes have multiplied. Cultural change is inevitable when companies employ hundreds (instead of tens) of people. While Private Equity continues to attract the “best and brightest” people, they have added more layers and, hence, more uncertainty and complexity in their investment process. Larger organizations tend to be less entrepreneurial and slower moving. They tend to become more inward-focused; towards organizational survival, and less flexible for entrepreneurial CEO’s.

Private Equity could start to look more like the high yield debt market

The “debtification” of the private equity market represents a shift of emphasis towards return of capital rather than multiplication of capital. As Private Equity returns converge with high yield debt, they will favor terms that mitigate and shift risk to the Entrepreneur and founding shareholders who may get less value from a capital partner who is not as aligned with their interests.

Smaller funds will be more effective in the lower middle market

Large Cap funds will be replaced in the lower middle market by smaller funds, spinoffs and independent sponsors, who will be more eager to pursue investments under $10-20 million and allocate time and energy towards their success. Entrepreneurs will be better off avoiding large, “brand name” funds and focus on smaller funds that can give Entrepreneurs what they need most; attention from senior partners.

Cheap capital may not always be a good thing for Entrepreneurs

Lower returns can be indicative of a more efficient capital market which lowers costs and benefits everyone. However, it should also expand companies’ financing options, improve transparency and lower transaction costs which does not seem to be happening. Financing options for Entrepreneurs will become more perilous as funds chase returns lower but structure more onerous downside protection- something akin to offering “teaser rates” to borrowers. You may have to read the fine print to know what you’ve really got in a deal.

Potential Value of Management Options will Decrease

In deals of equal size, management options will be worth 63% less over five years at a 15% IRR versus a 30% IRR. Hence, management may need more equity or become more focused on current cash compensation and less on long term capital gains.

Bottom Line

As Private Equity evolves into a large, institutionalized asset management industry, its success seems to be causing a shift away from its original constituency; smaller, privately-owned businesses that need support and guidance to achieve the next level of success. The economics of larger fund sizes and deals and, hence, fee income to GP’s are just too compelling to ignore. When funds chase bigger deals at reduced IRR’s, they become focused on return of principal, less able and willing to pursue riskier growth strategies and, structurally, more dependent on management fee income vs. carry as a percent of the overall professionals’ compensation. The additional layers of people needed to manage the larger infrastructure can also dilute the talent and attention to the portfolio companies.

Entrepreneurs have a bigger selection of potential partners than ever but a far more complex selection process. Smaller investment firms with a highly engaged senior team who get most of their compensation from capital gains may be harder to find but offer a significantly stronger value proposition as capital partners.