DENVER--()--KRG Capital Partners (“KRG”) completed a successful 2012 acquiring nine new companies (including four platforms), exiting three investments and completing two dividend recapitalizations. With over $375 million of available capital from KRG’s $1.96 billion Fund IV along with additional capital from institutional co-investors, KRG is actively pursuing the acquisition of two or more additional platforms as well as continuing its aggressive “buy and build” consolidation strategy for the existing 14 Fund IV platforms. KRG also anticipates positioning two to three additional companies for exit in the next 12-18 months.
On the acquisition front in 2012, KRG acquired four platforms at an aggregate enterprise value of $1.4 billion (Ansira Partners, Inc., Convergint Technologies, Home Solutions Holdings, LLC and Athletic Therapy Institute Holdings, LLC) bringing the Fund IV platform count to 14, and acquired five add-on acquisitions for a total of 133 since KRG’s inception. Such transactions led to investing more than $700 million in 2012, including approximately $150 million invested or to be invested on behalf of KRG’s institutional co-investors. With significant Fund IV capital still available (approximately $375 million, excluding existing co-investors), KRG currently remains very active in reviewing both new investment opportunities as well as seeking add-on acquisitions for its existing portfolio.
From an exit perspective, KRG sold three platform companies in 2012, one from its $715 million Fund III (PetroChoice) and two additional platform companies from its Fund IV (Liberty Dialysis and Tronair). These three exits generated over $1 billion in combined distributions for the KRG Funds and the institutional co-investors that invested side by side with KRG.
Additionally during the second half of 2012, KRG recapitalized two platform companies, Olson + Co., Inc. and Fort Dearborn Company, Inc., enabling dividend payments to Fund IV investors and institutional co-investors in excess of $145 million.
Platform Company Acquisitions
KRG continues to generate significant deal flow, closing on four Fund IV platform acquisitions in 2012 and is actively reviewing several new opportunities currently. KRG acquired Ansira Partners, Inc. in March 2012 as its eleventh Fund IV platform acquisition. Ansira is an industry-leading direct marketing platform with a deep set of data-driven marketing services that are built on customer intelligence and aimed at maximizing each client’s return on marketing investments. The company is KRG’s third investment in the marketing services sector since the Firm’s inception, and with an experienced and deep management team KRG believes it is well positioned to execute an add-on acquisition strategy focused on enhancing and expanding the company’s service offerings and vertical expertise.
In August 2012, KRG acquired its twelfth Fund IV platform company, Convergint Technologies, one of the nation’s leading providers of integration services for electronic security, fire and life safety, and building automation in North America. Convergint initially installed cameras, card readers and smoke detectors. Today, Convergint is the leading independent integrator in deploying and servicing IP based devices. These systems and sophisticated application software are integrated into a client’s enterprise systems to create business efficiencies, meet regulatory requirements, and provide safe working environments. With its new partnership with KRG, Convergint expects to increase its organic growth and pursue acquisitions that will bolster its geographic coverage and expand its high level enterprise integration business.
In October 2012, KRG acquired its thirteenth platform company, Home Solutions, the leading independent home infusion provider in the northeastern United States that services approximately 13,000 patients annually, offering acute and chronic infusion services to patients in the home setting. Home Solutions is well positioned as a “provider of first choice” in the attractive home infusion therapy industry, a niche within the broader home healthcare services sector. In conjunction with management, KRG intends to pursue a three-pronged value creation strategy consisting of i) ongoing same-pharmacy revenue growth driven by the company’s best-in-class reputation leading to penetration of existing markets through referral sources, ii) expansion of de novo pharmacy openings and iii) selective pursuit of strategic acquisitions of top market leaders or hospital-based providers to expand geographic presence.
In December 2012, KRG acquired its fourteenth Fund IV platform company, Athletic Therapeutic Institute Holdings (“ATI”), a leading provider of comprehensive outpatient rehabilitation services in the attractive physical therapy industry with all locations operating under one brand. ATI was previously owned and subsequently sold by KRG’s Fund III in 2010 for an attractive return and, prior to being purchased by Fund IV, exhibited continued expansion and growth through i) driving continued same-clinic growth by further penetrating referral sources, promoting brand awareness, and leveraging industry leading clinic management systems; (ii) expanding through de novo clinic openings; and (iii) pursing select strategic acquisitions consisting of both in-market tuck-ins and new market anchor transactions. ATI has an established infrastructure and a strong, experienced senior management team prepared to absorb aggressive growth. As such, the company acquired its first two add-on acquisitions approximately one week after signing an agreement with KRG and intends to maintain its successful growth trajectory throughout Fund IV’s ownership period.
Finally, as evidence of KRG’s consistent ‘buy and build’ investment strategy, KRG acquired five add-on acquisitions in 2012 and continues to review additional add-on opportunities for its younger platform companies. Particularly notable is the transformative acquisition of Franklin Machine Products (“FMP”), a leading differentiated and growing distributor of critical MRO parts, supplies and equipment to the foodservice industry, by Diversified Food Systems (“DFS”, formerly known as AllPoints), a Fund IV platform. With the consolidation of FMP, DFS is poised to become the premier distributor of parts, supplies and accessories to the foodservice industry.
Platform Company Exits
KRG began 2012 with the exit of PetroChoice, the largest distributor of consumable commercial, industrial, and passenger vehicle lubricants in the Mid-Atlantic and Upper Midwest regions of the United States. KRG acquired PetroChoice in December 2007 and completed three add-on acquisitions during its four year ownership increasing the company’s facilities from two to nine and substantially increasing revenue and EBITDA. This growth trajectory positioned the company for a successful exit in January 2012.
In February 2012, KRG completed its first exit in Fund IV, selling Liberty Dialysis to Fresenius Medical Care (NYSE: FMS). Based in Mercer Island, WA, Liberty provides dialysis services for patients who have been diagnosed with chronic kidney disease or end stage renal disease. KRG completed a total of four add-on acquisitions during its less than two year ownership of Liberty, one of which transformed the business into the third largest dialysis provider in the world (Renal Advantage, Inc.). Liberty’s growth from 15 programs in 2005 to over 280 at the end of 2011 positioned the company for a favorable exit.
Fund IV proceeded to sell a second portfolio company, Tronair Holdings, in March 2012 at a sizable return. Based in Toledo, OH, Tronair is a leading manufacturer of ground support equipment (GSE) for business, commercial and military aircraft. KRG acquired Tronair in February 2008, prior to one of the longest and deepest global recessions in recent memory. Given the economic climate, KRG and management focused on a growth strategy driven by organic growth (including end market expansion) and improved operating efficiencies rather than add-on acquisitions. These combined efforts built Tronair into a leading GSE brand in the business aviation market that continued to capture additional market share, and also expanded the brand strategically into both the commercial and military end markets.
Platform Company Recapitalizations
In September 2012, KRG completed a dividend paying recapitalization of Olson + Co., Inc., one of the ten largest independent full service digital advertising agencies in the United States. KRG’s funding of the original platform acquisition in October 2009, created a conservative capital structure that allowed Olson to fund its buy and build strategy and the purchase of four add-on acquisitions with only senior debt. However, due to outstanding free cash flow and strong EBITDA growth, net leverage decreased rapidly to approximately 1.0x EBITDA at June 30, 2012, providing an opportunity to recapitalize the balance sheet and return capital to the equity holders. Total leverage immediately post recap remained conservative at 2.5x.
In October 2012, KRG completed its second 2012 dividend paying transaction, recapitalizing Fort Dearborn Company, Fund IV’s packaging and labeling investment. Since KRG acquired Fort Dearborn in August 2010, the company has exhibited strong financial performance resulting in strong EBITDA growth and free cash flow generation. Accordingly, the company decreased total net leverage significantly from over 5.0x at acquisition to 3.7x as of September 2012. Upon completion of the recapitalization, leverage has returned to historic levels consistent with the original acquisition.
About KRG Capital Partners
Founded in 1996, KRG is a Denver based private equity buyout firm with $4.4 billion of cumulative capital either deployed or available for future investment, which includes approximately $1.1 billion deployed since inception by institutional equity co-investors. The firm seeks investment opportunities for its partners where KRG can work in concert with owners and operating managers who are committed to expanding their companies and becoming industry leaders. The result is a partnership that focuses on creating a significantly larger enterprise through a combination of internal growth and complementary add-on acquisitions. Since inception, KRG has invested in 45 platform companies and has completed 133 add-on acquisitions for those platforms. For more information on KRG, please visit www.krgcapital.com.