Less than six months after receiving a large investment from Nautic Partners LLC, property-restoration company Response Team 1 was taken over by lenders Antares Capital and Lone Star Capital, according to three sources.
RT1 failed to meet a performance/revenue target that was part of the Nautic recapitalization, one former executive at the company said. This tripped a loan covenant that prompted the lenders to take control of RT1 between August and September, according to two former RT1 executives.
Nautic acquired RT1 in March 2016, investing roughly $50 million to $100 million for a 59 percent stake, sources said. Antares and Lone Star, which provided unitranche financing for the deal, now control the company, an Antares spokeswoman confirmed. Lone Star declined to comment.
It is unclear whether Nautic Partners lost some of or all its equity investment. Also unclear is whether the change in ownership of RT1 will affect the Nautic fund used to finance the deal. Nautic did not return calls or messages for comment. (Nautic’s website lists RT1 Holdings as an exited investment.)
The Providence, Rhode Island, PE buyout shop invests in three sectors: healthcare, industrial products and outsourced services. Nautic closed its eighth fund in January 2016, raising $900 million.
Nautic used its seventh fund, which collected $530 million in 2014, to invest in Response Team 1. Fund VII has generated a 70.8 percent net IRR as of Sept. 30, 2016, Pitchbook said. Limited partners in Fund VII include Colorado Fire and Police Pension Association, Employees’ Retirement System of Rhode Island and New York State Teachers’ Retirement System, Pitchbook said.
Founded in 2010, RT1, Wheeling, Illinois, helps residential and commercial customers recover from catastrophes like floods or fires. The company employs 501 people and reported $167 million of revenue for 2015, according to PitchBook.
After its sale to Nautic, RT1 changed its senior management, which is not uncommon when a PE firm acquires a company. John Goense co-founded Response Team 1 with Erik Bloom in 2010. Goense, who had been CEO of Response Team 1, and Bloom, ex-vice chairman, are now managing directors with Goense & Co, a private investment firm out of Miami Beach.
Lauren John Reid, the company’s chief operating officer, departed. (Reid has since passed away.) James DeBruzzi, RT1’s CFO, also left, although his LinkedIn profile lists him as still employed at the company.
Antares and Lone Star provided financing for the RT1 deal through their Middle Market Growth joint venture. Lone Star earlier this year opted to leave the joint venture, Buyouts reported. It’s not clear why Lone Star left the partnership.
The MMGP program was structured so that Lone Star owned the junior interest, while Antares had the senior interest, Buyouts said. If one deal went bad, Lone Star was responsible for all the losses until its capital was wiped out, the story said. The junior interest had a higher yield if the portfolio performed satisfactorily, a source said.
Antares, which owned the senior debt, had a lower yield but its stake was much safer, the source said.
Nautic, Baird, Response Team 1, Goense and Bloom did not return calls or messages for comment.
Action Item: To contact Mark San Fratello, RT1 CEO, call him at 847 325 4200
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