Gryphon Inks Add-On After Prolonged Process

Target: FKI Logistex Group Ltd.

Price: $40 million

Sponsor: Gryphon Investors

Seller: Melrose Plc

Financial Adviser: Seller: Lazard Ltd.

Legal Adviser: Sponsor: Kirkland & Ellis LLP

It was a long time coming but Gryphon Investors has finally landed a desired add-on for portfolio company Intelligrated Inc., a supplier of material handling systems. On May 28, the San Francisco-based shop agreed to acquire the North and South American operations of FKI Logistex Group Ltd. from Melrose Plc for $40 million. The carve-out comes nearly a year after a previous deal between the parties was scuttled when financing fell apart.

Executives at Gryphon Investors, a mid-market firm that engages in traditional buyouts, leveraged build-ups and growth equity investments, initially signed a letter of intent to buy the business in September 2008, the fateful month when Lehman Brothers collapsed into bankruptcy, an event that exacerbated the already considerable turmoil in the global financial system.

“The credit market crisis turned everything upside down,” said David Andrews, president and managing general partner of Gryphon Investors, told Buyouts.

Back then, the banks that had agreed to finance the deal walked away, and it wasn’t until last month that the firm found a willing lender in Wells Fargo Foothill, which provided a revolver. Andrews said equity comprised the vast majority of the purchase price, though he declined to discuss specifics of the financing.

The deal gives Gryphon Investors about a two-thirds stake in the business; management also controls a substantial interest and Tudor Ventures, a Boston-based investment firm, is a minority investor.

Andrews and his colleagues at Gryphon Investors were committed to corralling the business, believing the deal establishes Mason, Ohio-based Intelligrated Inc. as a leader in the material handling business. Intelligrated Inc. makes motorized, automated conveyor systems used by large warehouses to track inventory. Customers of Intelligrated Inc. include Best Buy, Loews, Home Depot, Staples Inc. and Pepsi Co. The combined company is expected to generate $400 million in annual revenue, Andrews said.

Gryphon Investors bought Intelligrated Inc. in 2001 for an undisclosed amount via Gryphon Partners II LP, a $420 million pool it closed in 1999. Already a lengthy investment, the firm doesn’t plan to exit Intelligrated Inc. until three or four years after the economy rebounds, Andrews said.

The firm made the add-on investment with capital from both Fund II and Gryphon Partners III LP, a $515 million pool it wrapped in 2006. That fund is about two-thirds invested, and Andrews said the firm has no intention of hitting the fundraising circuit any time soon because of difficult market conditions. “We’re comfortable in the near term,” he said.