Dallas Shop Developing Southwest Infrastructure Niche

Target: Meadow Valley Corp.

Price: $61.3 million

Sponsor: Insight Equity

Seller: Shareholders

Financial Adviser: Sponsor; Seller: Alvarez & Marsal Securities

Legal Adviser: Sponsor: Hunton & Williams LLP; Seller: DLA Piper USA LLP

Insight Equity is carving out a niche for itself as one of the only mid-market buyout shops comfortable investing in what could be a very lucrative infrastructure sector in the southwestern United States.

The Dallas-based buyout firm recently completed its take-private acquisition of Meadow Valley Corp., a Phoenix-based construction contractor that specializes in building highways, bridges, overpasses and airport runways in the Phoenix and Las Vegas areas. The total equity value received by the company’s shareholders was around $61.3 million.

Professionals at Insight Equity felt comfortable pursuing the Phoenix-based company because the firm already owns a company that works in the infrastructure sector: In 2006, it bought Hirschfeld Steel, a San Antonio,Texas-based steel provider that’s been in on a number of high profile projects, including the Dallas-area George Bush Turnpike, baseball stadium Minute Maid Park, where the Houston Astros play, and football stadium Heinz Field, the home of the Pittsburgh Steelers. “We’ve had a lot of success with [Hirschfeld], so we were naturally intrigued with the idea [of buying Meadow Valley],” Conner Searcy, partner, told Buyouts.

Another attribute that drew Insight Equity’s attention was Meadow Valley’s location: The company serves Arizona and New Mexico, two of the fasted growing states in recent years (though some reports indicate that growth is slowing). The firm also believes there are contracts to be won through the impending federal stimulus package, which is expected to target infrastructure, among other areas, Searcy said.

But despite the perceived upside, there were some bumps on the road to closing the deal, which was originally signed in July. On Dec. 1, Meadow Valley received a letter from Insight Equity warning that a material adverse effect in the company’s performance—the result of an alleged decrease in its fair market value in excess of $6 million since the date of the merger agreement—could prevent the consummation of the deal. It’s unclear how the matter was resolved, although Searcy did provide a comment to peHUB, the sister Web site of Buyouts, saying, “We felt that there was a material adverse change in the business, but we still closed on the original terms and conditions from July. When we commit to a deal we get it done.”

Insight Equity joins a growing number of buyout shops targeting infrastructure, although most of the other firms targeting the sector are big-name firms with multi-billion dollar funds, such as Kohlberg Kravis Roberts & Co., Goldman Sachs and The Carlyle Group.

Terms weren’t disclosed, but equity comprised about 40 percent of the capital structure, Searcy said. LBC Credit Partners Inc., a Philadelphia, Pa.-based lender, provided two senior secured term loans, and Capital One provided a revolver. Both entities have helped finance previous Insight Equity deals. Insight Equity also helped finance the deal with more than $5 million from its mezzanine fund.

Based in Southlake, Texas, Insight Equity specializes in recapitalizations, restructurings, divestitures, and public-to-private investments in mid-market companies. Other sectors of interest include manufacturing, automotive and transportation, aerospace and defense, and industrial and consumer goods. It typically cuts equity checks between $50 million and $500 million. The firm is currently raising its second fund, targeting $500 million.