Illinois Shop Calls A Housing Bottom

Target: Sencorp

Price: $41 million

Sponsor: Wynnchurch Capital

Financial Adviser: Seller: Mesirow Financial

Legal Adviser: Sponsor: Vedder Price; Seller: Latham & Watkins LLP

Wynnchurch Capital is essentially calling a bottom in the housing market with its most recent investment.

The Rosemont, Ill.-based buyout shop on July 17 bought Sencorp, a parent company whose subsidiary makes products used in home construction, out of bankruptcy for $41 million. “Certainly we’re mindful of where we are in cycle,” Frank Hayes, a partner at the firm, told Buyouts. “But we do believe if we’re not at the bottom, we are near the bottom of housing starts.”

When asked over the last 18 months or so what sector they were avoiding, perhaps the most popular answer among buyout professionals was anything associated with the housing market. But Wynnchurch Capital’s investment suggests a thaw in private equity interest in the sector.

Indeed, Wynnchurch Capital professionals think they’re getting in at just the right time. On the same day the firm closed the Sencorp deal, the Commerce Department announced the number of residential building construction projects, or housing starts, rose unexpectedly in June by 3.6 percent to 582,000 units, from 562,000 units in May. Most economists had forecast the number to come in at 532,000. The gains came mostly from the construction of single-family homes, which increased by 14 percent, that category’s biggest rise since December 2004.

Sencorp is the parent of Senco Products, which makes tools as well as nails, staples and other fasteners used in home construction. Eighty percent of its customers are professional contractors who buy the products through a wholesale distributor, while 20 percent are retail shoppers who buy the products at stores such as Home Depot. The company filed for bankruptcy in May as its business suffered due to a sharp rise in steel prices and the decline of commercial and residential construction.

Wynnchurch Capital was the stalking horse bidder during the bankruptcy and the company received no other bids, Hayes said. The Sencorp investment comes out of Wynnchurch Capital Partners II LP, a $350 million fund the firm closed in January 2006. Wynnchurch Capital is currently raising its third buyout fund, reportedly with a target of $500 million.

The firm has some experience investing in bankrupt companies, though they have yet to exit a company they bought through bankruptcy. In October 2005 the firm bought BBi Enterprises Group Inc., a Holland, Mich.-based company that makes thermal and acoustic interior parts for cars, out of bankruptcy. It was also recently named the stalking horse bidder for the North American assets of Proliance International, a New Haven, Conn.-based company that provides radiators for the automotive aftermarket; firm executives expect the deal to close sometime in August or early September.