Kohlberg to acquire Riveron; private equity at the casino and in space

Good morning dealmakers, thank goodness it’s Friday!

It’s Obey Martin Manayiti here with the Wire.

The sky hasn’t cleared completely of the haziness that pummeled New York City and other parts of the country this week but hopefully the situation will continue to improve over the weekend.

To cap off the week, I am looking at PE investments in the gaming industry, in areas such as casinos, horse racing, online betting and more from longtime investors Apollo Global Management and Clairvest Group.

I will also look at AE Industrial Partners’ portfolio company Firefly Aerospace, an end-to-end space transportation company with launch, lunar, and in-space services, which acquired Spaceflight to strengthen its on-orbit offering.

But let’s start with this morning’s news.

New York-headquartered Kohlberg & Company has agreed to acquire Riveron, a national business advisory firm focused on the office of the CFO, private equity, and other capital providers.

Current investor H.I.G. Capital, a Miami-based firm, will continue its partnership with Riveron through a minority investment while a percentage of Riveron’s employee base will also be equity owners in the company.

The company was formed in 2006 and has over 700 employees across 12 offices in the US. The deal is expected to close in July.

PE goes to the casino
The thrills and chills of wagering at the casino or racetrack are luring more Americans – and their wallets and pocketbooks – every day. And private equity investors are stepping up to the table.

I recently spoke with Apollo Global Management, a large cap investor, and Clairvest Group, which focuses on the mid-size market, about their approach in this sector.

Apollo owns a string of gaming investments in the US and abroad. They include The Venetian, which was acquired from Las Vegas Sands for $2.25 billion, and the Great Canadian Gaming Corp, one of the largest casino operators in Canada, for approximately C$3.3 billion ($2.5 billion).

Recently, the Toronto-headquartered Clairvest Group, which has made over a dozen gaming platform investments over the years, partnered with ECL Entertainment to acquire licensed gaming assets that will enable them to build a gaming operation in southern New Hampshire.

But what does it take to succeed in this industry?
“The same thing that would allow you to be successful in any private equity investment,” said David Sambur, Apollo partner and co-head of private equity. “You have to pay the right price, enter at the right time, have the right value creation plan and to execute on it. You must have a good management team and you have to exit in the right manner.”

What’s also an advantage, paradoxically, is the high barrier to entry. “The complexity and heavily regulated nature of the gaming industry is, in part, what attracts us to it,” Sambur said. “While this may turn other sponsors away, we’ve historically leaned into this complexity.”

But at a local level, navigating the regulatory landscape starts with bringing the authorities on board, said Michael Wagman, Clairvest’s president and managing director.

That also means contending with paying high taxes, something that is a high barrier to other would-be investors. In these regional gaming markets, taxes can be as high as 50 percent. “In local markets, we are paying a higher tax rate to the state government compared to destination gaming casinos, and in exchange, we get a contractual monopoly or oligopoly in that jurisdiction,” said Wagman.

Flying into the space
Firefly Aerospace, which is backed by AE Industrial Partners, has acquired Washington-based aerospace company Spaceflight.

Based in Texas, Firefly is a space transportation company with launch, lunar and in-space services.

Spaceflight’s orbital vehicles provide payload deliveries, hosting and transfer services. The company operates manufacturing and payload processing facilities in Bellevue, Washington, including clean rooms, environmental testing capabilities and bays for concurrent spacecraft production.

In October, I rounded up half a dozen PE-backed deals in space tourism, with the sector becoming more competitive. Other firms picking up opportunities with space investments include BlackRock, Veritas Capital, General Atlantic, Enlightenment Capital and Trive Capital.

Secondaries market
MiddleGround Capital, which is embarking on its next fundraising cycle, is running a process to extend its hold over its portfolio company Banner Industries that will provide funding for a business combination, sources told Chris Witkowsky of affiliate title Buyouts.
The process, which is being run without an intermediary, is part of the active secondaries market that has seen a strong flow of inventory, but fewer closes.

MiddleGround acquired Banner Industries, a metal processor and distributor, in 2019 – and announced the deal in January 2020 – through its first fund. The firm completed three add-ons to Banner: Supra Alloys, which distributes alloy titanium products; Edge International, which distributes medical-grade cobalt chrome, stainless and titanium bar for medical implants and instruments; and NKS, which provides metal products and processing capabilities.

That’s all from me. Craig McGlashan, PE Hub Europe editor, will be back with you on Monday.

Have a nice weekend.

Cheers,

Obey