Good morning, dealmakers. MK Flynn here with today’s Wire.
We’ve got big news this morning from Buyouts and PE Hub, as we name Deals of the Year.
KKR leads the honorees, taking home overall Deal of the Year.
“Building garage doors isn’t the sexiest vocation on earth, unless you work for a company that makes them and then rewards you with more money than you’ve ever seen before,” writes Karl Shmavonian. “That’s exactly what happened when KKR exited its investment with portfolio company CHI Overhead Doors, and it’s one of the reasons why we’re crowning that transaction as overall Deal of the Year, leading off our awards, which honor private equity firms for the best exits made in 2022.”
As Kirk Falconer writes in the award profile, KKR acquired CHI in back 2015 from FFL Partners, pre-empting an auction.
By the PE giant’s standards, the investment was small: $685 million. CHI, however, was appealing to KKR. A manufacturer of residential garage doors, commercial doors and rolling-steel doors, it was profitable and had distinct competitive advantages.
“We’re always looking for a certain prototype, which is a fundamentally good business that we think we can make great,” Pete Stavros, KKR’s co-head of global private equity, told Kirk. “And that’s what we saw in CHI.”
Back then, CHI then sold some 600,000 doors per year. Its process since 1981 involved shaping rolls of steel, assembling door fronts and backs, filling some with polystyrene or polyurethane, putting in glass panels or wood decoration and preparing panels and door hardware for shipment.
KKR saw room for improvement. Priority areas included how raw materials were sourced, how products were made, marketed, sold and delivered, the efficiency of plant operations, and the need for more capacity.
“There were just a million different things that we saw potential in,” Stavros recalled.
To realize this potential, KKR also saw an opportunity to partner with workers by introducing an employee ownership and engagement strategy.
The strategy paid off, big time. By 2022, the company’s EBITDA had grown more than 3.5x on an organic basis, from $61 million to $229 million, while its EBITDA margin improved by over 1,400 basis points, from 20.5 percent to 35 percent.
Revenue increased by nearly 120 percent organically, enabled by construction of a second plant in Indiana, digital capabilities and salesforce effectiveness.
In June, CHI was acquired by steel manufacturer Nucor for $3 billion – 10x the original equity invested and the firm’s best return since the 1980s. The gross IRR was 42.3 percent, and the net, 37.8 percent.
The operational gains were “beyond anyone’s wildest dreams of what could have been accomplished here,” Stavros told CHI employees when he announced the sale to them.
The sale validated Stavros’ long advocacy of employee ownership.
The deal was expected to deliver an average cash payout of $15,000 per employee. Instead, the transaction distributed about $175,000 on average. The packet was even larger for most tenured employees: as much as $400,000 for plant workers and $800,000 for truck drivers.
As Kirk writes, for employees, many of whom are residents of the town of Arthur, Illinois, where CHI is headquartered and where the median household income is $58,920, “This was an extraordinary windfall.”
Greenbriar takes home Large Market Deal of the Year for its sale of Radwell International to CVC Capital.
Maybe it was Radwell’s desire to be known as the “Amazon of the plant floor” that first hooked Greenbriar, writes Iris Dorbian.
Founded in 1979, the New Jersey-based distributor of industrial automation components had a very clever business model that was trouncing the competition. Instead of selling premium parts to manufacturers at exorbitant prices, Radwell was buying surplus used parts, refurbishing them and then selling them at a discount.
Yet there was a problem. Although Radwell was growing leaps and bounds – clients included top brands such as Coca Cola and FedEx – it wasn’t enough. Enter the Greenwich, Connecticut-based buyout shop.
Following talks with Radwell’s eponymous leader and founder, Brian Radwell, Greenbriar made an equity investment of about $200 million in the company in 2020. Immediately, Greenbriar hit the ground running with a series of initiatives that not only met Radwell’s goals and then some, but generated the highest return for the PE firm in its 20-plus-year history when it exited a mere 15 months later.
Greenbriar’s April 2022 sale of Radwell to CVC yielded a more than 11.5x gross MOIC and a 644 percent gross IRR.
Radwell also reaped a lion’s share of the spoils, snagging $1.2 billion of proceeds for 275 employees as a result of an employee equity ownership incentive program launched by Greenbriar.
From the ground up
Francisco Partners scores Mid-Market Deal of the Year for its sale of Trellis Rx to CPS Solutions.
Private equity firms often take companies started by someone else and grow them beyond the limits of what the original founders could have accomplished.
But some firms take that entrepreneurial mindset into their own deals. Francisco Partners, for example, launched specialty pharmacy Trellis Rx in 2016, representing the firm’s third “ground up” investment, as Gregg Gethard reports.
In June, Francisco sold the company to pharmacy services provider CPS Solutions, reportedly reaping a chunky return, with sources putting it at 23.8x gross.
To learn more about the deal and all the winners, check out our full report here.
I’ll be back with more PE deal news tomorrow.