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Chromalox Switches PE Owners as Secondary Sales Become More Common

PE firms selling companies to each other has become very popular.

This week, we saw Sentinel Capital Partners buying Chromalox from CCMP Capital Advisors. Financial terms weren’t disclosed but the transaction represents a long-hold for CCMP, which is the former JP Morgan Partners. CCMP acquired Sentinel in 2001 in a deal valued $165 million.

It’s unclear what Sentinel paid for Chromalox, of Pittsburgh, which makes electric heat and control products. Sentinel, which invests in the lower middle market, will have a majority of Chromalox, while management will retain a minority. The transaction closed last month, says John McCormack, Sentinel’s cofounder and senior partner.

In February, GE Capital was reportedly clubbing a $90 million loan to back Sentinel’s buy of Chromalox.

New York-based Sentinel invests in deals ranging from $50 million to $300 million. Sentinel’s investment in Chromalox comes from its fourth fund, which raised $765 million in 2008. About one-third of the pool is invested, McCormack says. “We have work to do,” he says.

Harris Williams conducted an auction of the company. Sentinel initially looked at Chromalox over the summer, McCormack says. Chromalox is a “superbly managed” business, with 1,000 employees spread across the globe, he says. “The company has been doing very well,” McCormack says. “It is on a nice upswing due to a recovery in the worldwide industrial economy.”

No job cuts or management changes are expected.

In 2006, New York-based CCMP, then known as JPMorgan Partners, spun out from JP Morgan Chase. The PE firm typically invests $100 million to $500 million per deal. Sectors include industrial, energy, healthcare and consumer/retail & media. CCMP’s last fund raised $3.4 billion in 2007. Officials for CCMP declined comment.

Chromalox is the latest in a series of deals between private equity firms. This week, Permira agreed to buy BakerCorp, a provider of equipment rental services for liquid and solid containment applications, from Lightyear Capital. The sale was valued at $960 million. Arcapita, also this week, sold MedPlus Health Services to a consortium of PE firms. And, earlier this month, Bain transferred its majority stake in Keystone Automotive Holdings to Platinum Equity via a recap.

The $470 billion overhang has made “‘passing the parcel” deals more common. There are also companies sitting in older funds that need to be sold, McCormack says. For example, CCMP owned Chromalox for roughly a decade. One private equity source says that inexpensive and ample debt is spurring the rush of secondary sales.

“Private equity partnerships have a finite life and eventually they have to sell,” McCormack says. “There is money in PE funds that has been raised in the last three to four years that is available to invest.”

Sentinel did not use an outside financial advisor. McCormack lead the deal team for Sentinel which also included Eric Bommer, John Van Sickle, Warren Bates and Thomas Fitzpatrick. The Harris Williams team included Drew Spitzer, Brian Lucas, Doug Kinard and Bill Roman.