Trivest Puts a New Finish On an Old Platform –

Trivest last month agreed to invest between $30 million and $35 million in equity-or approximately 15% of its current buyout fund-in a $276 million acquisition of WinsLoew Furniture, with co-investors chipping in an additional $45 million.

Through the deal, the firm is looking to once again gain control of a company that it has had a stake in since 1985.

The proposed investment raises the question of whether buyout firms re-acquiring former portfolio companies are fulfilling their fiduciary duty to limited partners.

Trivest is not alone in employing this approach in a competitive deal environment. E.M. Warburg, Pincus & Co., L.L.C. last month agreed to buy Knoll, Inc.-a company that it already owns through one of its older partnerships.

“I think it makes sense [to buy a former portfolio company] if it is a fair, arm’s-length transaction and it is an asset that you would like to continue to own,” said Earl Powell, chief executive officer at Trivest, adding he did not consider this a case of buying directly from a prior fund.

“We liquidated most of our investment in the company in 1993 so it was not like we were selling 100% of the company to buy 100%,” Mr. Powell said. “We just felt we were comfortable with the furniture industry, and this is a good vehicle for future consolidation.”

A Complicated Beginning

Trivest first acquired furniture manufacturer Lowenstein Inc. in 1985 through portfolio company Western Pioneer-which Trivest had acquired in 1984 and renamed Atlantis Plastics after the Lowenstein acquisition.

The Miami-based firm later spun Lowenstein off in 1991, placing it under the auspices of its own holding company, Lowenstein Furniture Group. In 1994, Trivest bought Winston Furniture Co. and merged the business with Lowenstein, thereby creating WinsLoew Furniture. The firm brought the merged company public that same year, reducing its stake to its current level of 24%.

In the last year, WinsLoew, which manufactures and distributes aluminum and wooden furniture, has experienced a rebirth of sorts. The company’s profits and stock price increased dramatically in 1998-due largely to the shedding of its extensive, but underperforming, futon line-with net income rising to $2.73 per share last year from $0.30 per share in 1997.

But profitability can prove costly to a buyout firm on the prowl. In January, Trivest announced its intention to take WinsLoew private at $30 per share, a decided premium to the company’s share price at the time of $24.38; the agreement also included a $6 million breakup fee.

Trivest’s original offer was stymied in early March by Desai Capital Management, which was backing furniture retailer Hancock Park Associates. Desai, responding to a request for competing bids from Winsloew’s adviser Mann, Armistead & Epperson, Ltd., offered $32.50 per share backed by financing commitments.

Trivest and Desai Wage a Bidding War

The two firms proceeded to match each other blow for blow in a bidding war to acquire the Birmingham, Ala.-based company.

Trivest in late March responded with a $33 per share offer and managed to increase the breakup fee to $10 million, according to public records.

Desai was not deterred and in early April offered $33.50 per share, saying it would increase its bid to $34 per share if WinsLoew could convince Trivest to reduce its termination fee back to $6 million.

Trivest did not relent and in late April increased its offer to $34 per share-some 13% higher than its original bid.

Desai immediately increased its offer to $34.75 per share and reiterated its willingness to raise its bid by $0.50 should Trivest reduce the breakup fee.

Finally, early last month Trivest put an end to the process by telling WinsLoew’s Special Committee that it was making a final offer that matched Desai’s bid of $34.75 per share. To add to the intrigue, Trivest made it clear that its offer would expire at midnight-a move Mr. Powell justifies because of his firm’s need to pursue other deals.

The committee ultimately accepted Trivest’s shotgun wedding proposal because it had no other options if Desai did not come through with its commitment. However, sources said the breakup fee and Trivest’s decision to use hardball tactics with the deadline impacted the biddings outcome. In the event that WinsLoew had chosen another suitor, Trivest had placed $3 million escrow to aid the company in paying the breakup fee, Mr. Powell said. Partners at Desai did not return calls.

WinsLoew’s shareholders will vote on the offer next month.

In addition to equity, BankBoston, CIBC Capital Corp. and First Union Corp. have agreed to provide senior debt, while BankBoston, Bear, Stearns & Co. and First Union also will underwrite $135 million in subordinated debt.

Trivest, as a firm, stands to benefit from once again owning WinsLoew. The group is in the fifth year of a 10-year contract that pays it $500,000 annually for advising the company and is now negotiating a new contract. Mr. Powell said his firm will share some of the newly negotiated fees with its L.P.s but declined to give further details.

In prior funds, Trivest has also re-invested in former portfolio companies, making two runs each with Richileau Foods and Scientific Products.

“Trivest [as a firm] would have made more money by taking Desai’s bid and taking the breakup fee,” Mr. Powell said. “We were willing to forego a big payday to do something that was very good for our investors.”