Sole Source Capital has bought Dasco Label as an add-on for Supply Chain Services within three months of acquiring the platform business.
The PE firm invested in the factory automation service provider out of its $160 million debut fund. Sole Source approached Dasco’s management team soon after closing the SCS deal in May.
“We approached Dasco early to mid-July; they are 20 mins away from our existing facility,” said David Fredston, managing partner at the firm, referring to the platform company’s headquarters. The proximity of the add-on helped in conducting effective due diligence in this new physically distanced world, according to Fredston.
The pair of Blaine, Minnesota-based companies offer technology that helps warehouses, hospital labs, breweries, groceries and other small to medium-sized businesses automate and manage data collection.
While both founder-owned companies overlap in their offerings of labels, printers, barcode scanners and other industrial tech equipment, there are certain nuances in specialty labeling and technology that makes Dasco a value-add for SCS.
Sole Source did not comment on the impact covid-19 had on the balance sheet but alluded to increase utilization of e-commerce by consumers being a positive factor for both Dasco and SCS.
Unlike SCS, which came together following a limited auction, the Dasco deal was proprietorially sourced. The debt component was financed by Woodforest National Bank.
Although financial terms of the transaction weren’t disclosed, Sole Source confirmed that Dasco fits its typical investment criteria. Platform investments have at least $50 million in revenue and $5 million of EBITDA – a guideline not necessarily followed for all add-ons.
The Santa Monica-based private equity firm is in the market with its second fund, targeting $400 million, sister publication Buyouts previously reported. Fund II collected more than $200 million so far, Buyouts said.
Looking ahead, the PE firm plans to continue its buy-and-build strategy for SCS and other platforms. “We have reserved capital from Fund I for additional Supply Chain Services add-on investments,” Fredston said.
The aim is to grow companies to north of $20 million in EBITDA before exiting, Fredston said. White & Case provided legal counsel on the deal.
Update: A reference to a Fund II deal was removed from an earlier version of this report; added information about the Fund II fundraising process.
Action Item: Check out Sole Source’s recent form ADV.