Boat Deal Signals New Treadstone Fund

Target: Nichols Brothers Boat Builders

Price: $15 million

Sponsor: Treadstone Partners LLC

Seeing roll-up potential in the boat-building industry, turnaround firm Treadstone Partners purchased Nichols Brothers Boat Builders out of bankruptcy last month. The deal, valued at $15 million, also means the firm’s first fund is two-thirds invested, tripping the wire for another round of fundraising.

The Dallas-based firm will return to market in a few months seeking more money with a new and expanded pool of LPs. Its first fund—a captive $60 million vehicle raised by funds-of-funds manager Drum Capital—followed seven years of one-off deals and investing in distressed debt.

This marks Treadstone Partners’s second attempt to raise a second fund. In September, the firm tapped placement agent C.P. Eaton to help it raise a $300 million vehicle. The three-month effort, described by a source familiar with the firm as “not broad,” was unsuccessful. For its renewed fundraising efforts, Treadstone Partners is going it alone with a lowered fundraising target of $150 million to $200 million.

Drum Capital has expressed interest in investing again, but may commit less than its previous $60 million because of its internal concentration constraints, according our source.

Treadstone Partners allocates about 70 percent of its capital to buying up distressed senior secured notes of private companies. The firm typically ends up buying control of 30 percent to 40 percent of those companies, often post-restructuring.

Such is the case with Nichols Brothers, which filed for bankruptcy in November. Treadstone Partners in January purchased $3.7 million of the business’s asset-backed loans from one of Nichols Brothers’s customers and creditors, Joe Usabeli. Following the sale, Usabeli retained 10 percent of his total debt holdings, which, post-bankruptcy, translated to a 10 percent stake in the business as well as a board seat.

At a bankruptcy auction last month, Treadstone Partners paid another $5.9 million to take control of Nichols Brothers, beating out California-based Crowley Maritime Corp. Including the initial $3.7 million, along with related real estate purchases and capital expenditures, the firm intends to invest $15 million in Nichols Brothers.

The boat builder fell into distress after signing a series of money-losing contracts for yachts; those contracts were erased during bankruptcy. Treadstone Partners wants to revive the business by taking it back to its roots of making tugboats, high speed aluminum ferries and auto-ferries, said Principal Michael Donohoe, who added that those also happen to be high-growth areas within the boat-building industry.

Treadstone Partners focuses on the manufacturing, logistics, distribution and financial service companies, with typical deal sizes between $5 million and $25 million. Previously, the firm bought Advanced Joining Technologies, a California-based welding services and manufacturing company.—E.G.