Announcements, news and newsletters about the Pegasus Capital Group.
- Pegasus Capital Group Press Release - Midwest Automotive Designs, LLC Sale
Los Angeles, CA - April 2017
Pegasus Capital Group ("Pegasus") is pleased to announce the sale of its interest in Midwest Automotive Designs ("Midwest"). Midwest, a leading upfitter of custom luxury vans and RVs, was recently acquired by REV Group (NYSE: REVG), a $2+ billion manufacturer of specialty vehicles. The company is based in Elkhart, IN. Pegasus invested in the recapitalization of Midwest alongside Merion Investment Partners and Petra Capital Partners.
In just three years in the Pegasus portfolio, Midwest's revenue more than doubled to $45 million. Founder and President, Tim Gray, remained a major shareholder following the original investment. Gray's leadership and the capital infusion accelerated the company's expansion, aided by the key additions of CEO Harry Schmink and CFO Sam Lugo to the team. Growth primarily resulted from leveraging Midwest's superior products, reputation and brand to develop new markets and distribution channels, including those for Class B RVs.
Patrick Whelan, Managing Partner at Pegasus, said, "We are extremely satisfied with the progress the company made during our partnership with Merion and Petra. This has been a highly successful investment for our firm and we wish the entire Midwest team continued success." (perma link)
- Pegasus Capital Group Expansion Announcement - Luke Sage
Los Angeles, CA - October 2016
Pegasus Capital Group is pleased to announce that Luke Sage has joined the firm as a Partner in Pegasus' Santa Monica office. He is involved in all phases of Pegasus' investment activity and is a member of the firm’s investment committee. He has nearly twenty years of product design, manufacturing, engineering, Asian sourcing and lower middle market private equity and investment banking experience.
Mr. Sage said, "I have long respected Pegasus Capital Group’s focus on industrial and manufacturing, and am excited to join the team. I began my career as an Industrial Engineer, and look forward to putting my experience to work, helping the firm continue to build great companies and provide exceptional returns to investors."
Patrick Whelan, Managing Partner at Pegasus, said, "Luke’s industrial and manufacturing expertise, deep knowledge of of the corporate finance industry and operating experience make him a perfect fit for Pegasus. We are thrilled that he will be enhancing all facets of the firm as a Partner in our home office."
Prior to Pegasus, Mr. Sage was President of Heath Capital Group, a Los Angeles-based private equity firm with a history of investments in branded consumer products companies. A Michigan native, Mr. Sage has spent many years as a sell-side investment banker, Vice President of Manufacturing leading the construction of new manufacturing plants and a profitability consultant for numerous multinational corporations. Additionally, he was Director of Process Improvement and an Industrial Engineer with various firms in the Midwest and on the East Coast.
Mr. Sage earned his Bachelor of Science in Industrial Engineering from Western Michigan University, where he was a James River Scholar, and his MBA in Finance from Saint Louis University. (perma link)
- Pegasus Capital Group Expansion Announcement - Michael Sieglen
Los Angeles, CA - September 2016
Pegasus Capital Group is pleased to announce that Michael Sieglen has joined the firm as a Senior Associate. Mike is involved in transaction origination, analysis and execution, as well as portfolio company management. He is excited to join Pegasus and its growing platform, and to contribute to the success of the firm and its partner companies.
Patrick Whelan, Managing Partner at Pegasus, said, "We are happy to welcome Mike to the Pegasus team. We believe that his experience, energy and insights will be valuable both to Pegasus and our partner companies and we look forward to leveraging his talents.”
Prior to Pegasus, Mike worked for Lazard in Chicago as a member of its middle market advisory group. Previously, he held investment and corporate banking roles at Duff & Phelps and The Bank of Tokyo-Mitsubishi UFJ.
Mike earned his Bachelor of Science from Boston College and holds a MBA degree in Finance and Management & Organizations from Northwestern University’s Kellogg School of Management. (perma link)
- Pegasus Capital Group Affiliates with Leading Lean Manufacturing Experts - LSI Consulting Group, LLC
Los Angeles, CA - November 2015
Pegasus Capital Group ("Pegasus") is pleased to announce its affiliation with leading lean manufacturing experts, LSI Consulting Group, LLC ("LSI"). The affiliation furthers Pegasus' model of assembling specialists for its investments who are passionate about improving and growing the manufacturing businesses they assist.
LSI Consulting has successfully served the manufacturing community for more than ten years. Its world-class results have led to numerous operational improvements at many companies, including Cosworth Racing Engines, Orbital ATK, Kelly Moore Paints and Crosman Corporation.
Shawn Kaul, President and CEO of LSI said, "This relationship allows LSI to expand its offerings in the private equity community, specifically to stakeholders wanting to grow and improve their companies under the stewardship of Pegasus Capital. We see this relationship as one of mutual cooperation: trusted partners working towards the common goal of empowering people to help their companies maximize efficiency."
Patrick Whelan, Managing Partner of Pegasus said, "This new partnership will bolster Pegasus' longstanding tradition of buying and building manufacturing businesses. We look forward to working side-by-side with LSI to take additional outstanding companies to their next level of success."
- Pegasus Capital Group Press Release - SPG International, LLC Sale
Los Angeles, CA - April 2015
Pegasus Capital Group ("Pegasus") is pleased to announce the sale of its interest in SPG International, LLC ("SPG" or the "Company") to the Company. The transaction was led by the Company's President and CEO, Steven E. Darnell. SPG was successfully carved out of Leggett & Platt, Inc. (NYSE: LEG) after the senior management team and Pegasus acquired it in 2010.
SPG, headquartered in Atlanta, Georgia, is the leading single-source provider of storage solutions to the foodservice, retail and industrial material handling industries. The Company's superior and customizable product offerings, coupled with its excellent customer service, have enabled it to win premium international accounts in the restaurant, grocery, retail and industrial markets.
Patrick Whelan, Managing Partner at Pegasus, said, "We are very satisfied with the progress we made in partnership with Steve Darnell and SPG's impressive management team, who have proven themselves time and again over our investment period. Once a division of Leggett & Platt, Inc., the Company is now a thriving standalone leader in its industry. This has been a highly successful investment for our firm and we wish the SPG team a very bright future." "We thank Pegasus for all of their contributions to our success," commented Steve Darnell. "We look forward to taking the next step in our Company's evolution, made possible by the efforts of everyone involved in growing the company since 2010."
Pegasus Capital Group acquires and grows niche middle market companies with at least $2 million of operating cash flow. The firm draws on the expertise of its affiliated network of operators, who have successfully led and advised companies with revenues ranging from $10 million to $300 million. Pegasus' transactions provide liquidity for individual owners, their families, outside investors and corporate owners. It has completed acquisitions across the country and considers investment opportunities located anywhere in the United States and Canada. Pegasus' current portfolio consists of numerous profitable companies in a variety of industries.
- Pegasus Capital Group Acquisition Announcement - Midwest Automotive Designs
Los Angeles, CA - February 2014
Midwest Automotive Designs today announced that it has received a substantial growth investment from Pegasus Capital Group, Merion Investment Partners and Petra Capital Partners. In conjunction with the growth investment, the company hired industry veteran, Harry Schmink, as CEO to work alongside Founder and President, Tim Gray. Based in Elkhart, Indiana, Midwest Automotive Designs is the industry's leading custom luxury converter of vans and trucks and specializes in the popular Mercedes-Benz Sprinter platform. They were recently named to the 2014 Inc. 5000 list of the fastest growing private companies in the United States and just celebrated the completion of their 3,000th unit.
Established in 2004, Midwest Automotive Designs has cultivated an outstanding name and reputation domestically and abroad. The innovative company sets the standard for van-based executive offices, RVs and livery vehicles on a variety of OEM van and truck chassis. They offer a broad suite of custom options for corporations and university athletic teams as well as for families and individuals. Further information is available at www.midwestautomotivedesigns.com
Patrick Whelan, Managing Partner at Pegasus said, "We are delighted to be partnering with Harry, Tim and the entire management team to serve our OEM partners and customers with outstanding products, customer service and the attention to detail to which they have become accustomed. We look forward to assisting the company as it continues to grow rapidly on a number of exciting fronts."
Mr. Gray said, "I am thrilled to be partnering with Pegasus, Merion and Petra to seize the many opportunities available to us. Our company is at a major inflection point and the resources our investors bring to the table will allow us to execute on many growth initiatives to build our brand substantially in the US and internationally. With Harry as part of our team, we have added a manager who very successfully guided a number of companies in high-growth situations like ours."
Mr. Schmink, who spent the last 6 years as President of DACCO, Inc., a nationwide distributor of automotive aftermarket parts, said, "I am impressed with Midwest Automotive's growth in recent years, which results directly from their very high quality products. The Company has an exceptional foundation in place that will enable us to accelerate our expansion. I look forward to working with Tim and everyone on the Midwest Automotive team. Together, we will continue to focus relentlessly on our customers and delivering the highest caliber products and customer service."
- Pegasus Capital Group Acquisition Announcement - Jackrabbit, Inc.
Los Angeles, CA - April 2013
Pegasus Capital Group and Gladstone Investment Corporation (NASDAQ: GAIN) today announced they have acquired Jackrabbit Inc. along with its Dakota AG Welding division. Based in Ripon, CA, Jackrabbit is an industry leading manufacturer of nut harvesting and other agricultural equipment.
Established in 1981, Jackrabbit Inc. has cultivated an outstanding name and reputation domestically and abroad. The innovative company has pioneered and improved a number of award-winning harvesting machines which are now standard in the nut farming industry. Jackrabbit's machines are staple products in almond, walnut and pecan harvesting, while Dakota's self-propelled pruning towers and laser cutting and forming services expand its reach into crop industries, including cherries and avocados. Further information is available at www.jackrabbit.bz
Bob DeMont, a longtime resident of the Central Valley, will be joining the Jackrabbit and Dakota team as the new President during this exciting period of growth for the company. Bob, a West Point graduate with advanced degrees from Stanford, not only has experience in a variety of industries, including wine & spirits, injection molding and equipment manufacturing, but also runs a small family farm and understands the challenges facing the Ag industry. He said "I have always admired Jackrabbit and Dakota's focus on innovation and growers needs, and I'm excited to begin this new phase with such a great team. My goal is to continue Earl's legacy of building innovative solutions for growers.
Former majority owner and CEO, Earl Anderson, said "I strongly believe, based on my interactions with Gladstone, Pegasus and Bob DeMont throughout this process, that they will be great stewards of Jackrabbit and Dakota going forward. You will be able to count on the same high quality products and passionate level of honesty, integrity and service from the Jackrabbit and Dakota personnel that you have come to expect from your past dealings with our company."
Patrick Whelan, Managing Partner at Pegasus said "We are delighted to be partnering with Jackrabbit and Dakota's high-quality management team, suppliers and customers as well as Gladstone and Bob DeMont. We are excited to embark on a new chapter of innovation and growth in the dynamic nut and agricultural markets we serve."
Chris Daniel, Managing Director at Gladstone, said "Gladstone Investment is pleased to partner with both Pegasus and the talented management team at Jackrabbit and Dakota. We look forward to building on Jackrabbit's brand and long-standing success by continuing to grow the business."
- Pegasus Capital Group Acquisition Announcement - SANTIER
Los Angeles, CA - October 2012
Pegasus Capital Group is pleased to announce that, along with The Courtney Group, former eInstruction CEO, Stephen Kaye, and management, it has acquired Plansee Thermal Management Solutions, a San Diego-based provider of thermal management device packages and assemblies, from Austria-based Plansee Group. D.A. Davidson & Co. advised on the sale and Cole Taylor Business Capital provided the debt financing for the transaction. The company has been renamed SANTIER and will continue to operate out of its current facilities under the leadership of President & CEO, Vimal Dutt. This acquisition is the ninth for Pegasus.
SANTIER is a world-class designer and manufacturer of custom components from engineered materials for microelectronics. The company has a worldwide customer base. For additional information, visit santier.com.
Plansee Group is the worldwide leader in metallurgical powders for industrial groups, covering the entire supply chain of high-tech materials, including molybdenum and tungsten - from ore processing to the production of customer-specific components. In the 2011/12 fiscal year, Plansee Group generated consolidated sales of $2 billion dollars and employed 6,120 people.
SANTIER President & CEO Vimal Dutt said, "We are a build-to-spec solutions company dedicated to the success of our customers. We are excited about the opportunity to further expand our capabilities to the benefit of our customers."
- Pegasus Capital Group Press Release - Shield Pack, LLC Sale
Los Angeles, CA - December 2011
Pegasus Capital Group is pleased to announce the sale of its portfolio company, Shield Pack LLC (“Shield Pack” or the “Company”), to Bemis Company, Inc. (“Bemis,” NYSE:BMS) of Neenah, Wisconsin. Shield Pack, headquartered in West Monroe, Louisiana, was owned by Los Angeles-based Pegasus Capital Group; Hanover, New Hampshire-based Tuckerman Capital; and Shield Pack CEO, George Smith. Chicago-based investment bank, Blaige & Company LLC (“Blaige & Company”), advised Pegasus, Tuckerman and Shield Pack on the transaction. Terms of the deal were not disclosed.
Shield Pack is a leading manufacturer of protective lining for rigid and flexible intermediate bulk containers (“IBCs”), which have both dry and liquid applications. The Company, founded in 1968, created the market for liners for dry application bulk packaging and has been the leader in this niche since its inception. Leveraging over four decades of experience in the dry application barrier liner industry, Shield Pack has more recently established a strong and rapidly growing position in the liquid application market. Shield Pack’s key customers include Fortune 50 and 500 companies, including most of the world’s largest resin producers and compounders.
Bemis is a major supplier of flexible packaging and pressure sensitive materials used by leading food, consumer products and healthcare companies, among others, worldwide. Founded in 1858, Bemis is a member of the S&P 500 and employs over 20,000 individuals worldwide. The company operates 81 facilities in 12 countries. It reported net sales in 2010 of $4.8 billion.
Pegasus Capital Group is a Los Angeles-based private equity firm that invests in companies with at least $2 million of operating cash flow. We focus on acquiring profitable middle-market companies in non-technology intensive, basic industries which have significant growth potential. Our transactions provide liquidity for individual owners, their families, outside investors and/or corporate owners. Pegasus has completed acquisitions across the United States and considers investment opportunities located anywhere in North America. Our current portfolio consists of numerous highly-profitable commercial and industrial companies. Further information is available at www.pegasuscapgroup.com."
- Pegasus Capital Group Newsletter vol. 3, "Sustainable Building Materials"
Los Angeles, CA - October 2011
Sustainable Building Materials
In contrast to the stagnant broader building materials industry that has persisted since 2008, there has been robust activity in a key sub-sector: the green building materials industry. The growth in this industry has been driven by the evolution and adoption of new green building codes and standards. As greater importance is placed on a building's entire life cycle, including the type of materials used, the green building materials industry is projected to grow faster than the broader building construction materials industry through 2015. One of the main benefits of adapting to the new, more environmentally friendly manufacturing and construction practices is significant economic savings. This comes from reduced energy usage, materials costs and water savings over the life of the buildings, as well as reduced costs of using recycled materials that can cut production costs by 2-10 times, according to some estimates.
Overview of Building Materials Industry
Building materials is a very large and diverse industry encompassing all types of materials used in construction, including steel, aluminum, concrete, glass, and wood, among many others. The size of the US building materials supply industry, which First Research reported as $230 billion in its April 2011 report, displays the scope of the building materials industry size, which is not easily measured on the aggregate level.
In the United States, the building materials industry is still suffering from the economic recession with only minimal recovery. An index that measures builders' sentiment for the building materials industry fell to 14 in September 2011, just one point above the lowest level in twelve months and only six points above the lowest level on record in 2009. Builders are having a tough time constructing new homes and selling them for prices that cover costs, according to Bob Nielson, chairman of the National Association of Home Builders. Commercial construction activity is also stagnating. However, this is expected to reach the bottom soon, as indicated by the slowing rate of decline in contract award. The Architecture Billings Index also showed potential growth in the commercial construction market, with a score of 51.4 in August 2011. Scores above 50 indicate an increase in billings, and this is a leading indicator for construction spending over the next 6 to 9 months.
In contrast to the demand, the cost of construction materials has increased in 2011, which further decreases profitability for construction firms. "Materials costs for construction have greatly outstripped the Consumer Price Index and even the overall Producer Price Index in the first four months of 2011," says Ken Simonson, chief economist for The Associated General Contractors of America. Although the cost of raw materials like steel, diesel fuel, and copper are rising, contractors are continuing to work on projects for minimal price increases. Unless they keep prices low, the contractors risk losing the entire job. Overall, the price of construction materials is projected to be 5% to 6% higher in December 2011 than in December 2010, according to Simonson.
This increase in prices, along with the stagnating demand for new buildings, has not surprisingly had negative repercussions for the building materials industry. Total construction spending since August 2010 has remained relatively flat, up just 0.9% in 12 months, according to the U.S. Census Bureau. While the Private sector portion of that figure has risen 5.6% in the 12 month period, the 6.3% decrease in Public sector spending nearly offsets the gain. With budgets tightened at all levels of government, it is predicted that public spending will keep shrinking for years to come. There is, however, expectation that development activity will increase gradually into 2012 for certain building types and industries, such as apartments, manufacturing, private hospitals, and warehouse and distribution projects.
Regarding new development projects, Richard Green, director of the Lusk Center for Real Estate at University of Southern California, believes that there won't be a demand for new buildings until 2014, except for specific purposes and locations. Green stated that unless the US economy reaches pre-recession employment levels, there may not be much need for commercial real estate development. To get to that level, there need to be seven million jobs created, and this will take about three years at the current pace of job growth. "Outside of the most prestigious properties and locations, it's hard to see any recovery in office anytime soon."
Green Building Materials
Despite the overall industry outlook, there has been a significant boost for the building materials sector coming from an ongoing focus on green construction. Governmental, regulatory and professional organizations are modifying and adopting a new range of green building codes and standards that place greater importance on all aspects of a building's lifecycle: where and how a building is built, the resources it consumes, how it affects the environment, and what materials are used. For example, a key new trend has been greater use of recycled materials driven by the US Green Building Council's Leadership in Energy and Environmental Design (LEED) system. LEED is a voluntary rating system that rates a building's environmental impact in order to encourage greater sustainability.
The emphasis on green building materials has translated to a projected annual growth rate for the industry of 13% in five years, from $38.7 billion in 2010 to $71.1 billion in 2015. This growth rate is slightly higher than that of the building construction expenditures projected over the same period, since green materials are expected to account for an increasing share of materials used. The other key driver for demand will be the expected rebound in the construction market from 2010's low levels. Some of the products enjoying growth rates of approximately 20%, (higher than the industry average) are water-efficient plumbing fixtures and fittings, energy-efficient lighting fixtures, permeable pavement, and concrete that features recycled content. The U.S. is the second largest market for green materials, following Europe.
There are numerous companies working on innovative new building materials, such as DuPont, BASF, Ciba, and Calera. DuPont, which has shown a commitment to sustainability in its R&D processes, has a joint venture with Tate & Lyle to build one of the world's largest biomaterials facilities. This facility will convert corn sugar into Bio-PDO, a renewable ingredient that is used to make Dupont's Sorona polymer. This polymer serves as a raw material for products such as carpet that provides an innovative benefit of permanent stain protection. Another new DuPont product is Sentryglas, which incorporates new interlayers that are stronger and stiffer than conventional materials to create a lighter, safe, and more structurally sound glass. Sentryglas can withstand greater loads and higher threat levels, such as hurricanes, than conventional glass. Other innovations include phase-change materials that address thermal loss from homes to make them more energy-efficient. Companies such as BASF and Ciba are working on these technologies to incorporate phase-change materials into window construction.
Calera, another company in the green building materials industry, is developing a new cement manufacturing process that reduces the amount of CO2 released by power plants. The firm utilizes a process that puts CO2 (an emission gas) in contact with water from various sources so that the minerals in the water bind to the gas. The byproducts of this process are mineral carbonates and bicarbonates that have a number of construction applications, such as cement. Another beneficial output is water that is more purified because the salts and minerals have been removed through the carbon dioxide capturing process. Calera has built a demonstration plant in California that is capable of capturing 30,000 tons of CO2 per year, equivalent to the CO2 output of a 10MWe natural gas power plant.
This type of new product development is likely to continue as building requirements are amended further to minimize the impact of construction on the environment. This translates into projects that further cut emissions and energy usage, which is leading to the development of "smart" buildings that can react both to energy usage and to the needs of occupants. However, while new products may bring promise, their application or use may be curtailed by the stringent requirements of local planning offices for residential construction. These planning organizations have narrow specifications for acceptable building materials, so it can be difficult for new materials to be approved for use by these groups.
Past and Ongoing Sustainability and Green Initiatives with Building Products: Steel
The steel industry, which produces one of the most prevalent building materials in the world, has been increasing efficiency and reducing its carbon footprint in steel production for decades. There is a very high recycling rate for steel, 93.3% for structural steel, and it is the most recycled material - more than all other materials combined (as measured in tons). U.S. steel companies have been especially vigilant in reducing energy use and carbon dioxide emissions, as demonstrated by the lowest energy intensity per ton of steel produced compared to other nations. The United States also ranked second-lowest in terms of carbon dioxide emissions per ton of steel produced, behind South Korea.
There is increased recognition among architects that steel is an attractive building material for its important environmental qualities, especially its recycled content and high reclamation rate (a measure of how often a product is recycled at the end of its life). Using old steel products and other forms of ferrous scrap to produce new steel lowers steelmaking costs and reduces the energy used by 75%. In addition, the steel industry has been cutting the amount of energy used in the steel production process, reducing energy intensity by 30% from 1990. With these improvements, steel construction materials currently meet the green construction criteria established by the LEED rating system. The voluntary LEED system established by the U.S. government has been instrumental in the promotion of recycled materials, just like in the steel industry, and will continue to promote greater sustainability.
One form of steel that is useful for satisfying sustainability requirements is cold-formed steel (CFS). Compared to wood-based building projects, CFS construction reduces the waste produced at a building site. Many high performance buildings (another term for green buildings that are environmentally responsible and resource-efficient throughout their life-cycle) have been constructed with CFS framing. The advantages of using CFS include its consistent recycled content as well as the ability to recycle it repeatedly, making future demolition and reuse more appealing.
Next Steps for Steel
Despite the improvements mentioned above, American steel industry experts emphasize the need for investment in new manufacturing procedures that go beyond incremental improvements. Wide-scale application of new technologies that could disrupt current processes, such as carbon sequestration, remain unproven and need "significant research and development investments," according to Thomas Gibson, President and CEO of the American Iron and Steel Institute. He called for larger commitments from the federal government for additional research, similar to those made by European and Asian governments. This would help alleviate the pressure on the U.S. steel industry to balance the extra costs of greener manufacturing processes with competition from other companies and/or countries that are not required to comply with U.S. specific laws.
Past and Ongoing Sustainability and Green Initiatives with Building Products: Aluminum
The world's leading producer of aluminum, Alcoa, has also been improving its aluminum product line to be more environmentally friendly. The company recently introduced a coil-coated aluminum panel called Reynobond with EcoClean that cleans itself and the air around it. It aids in the decomposition of smog and other pollutants that cling to the panel surfaces. According to Alcoa, 10,000 square feet of the new panel has the equivalent air cleansing power of about 80 trees, offsetting the pollution of four cars each day.
When exposed to sunlight, the innovative Reynobond panel acts as a catalyst to break down pollutants, both on its surface and the surrounding air, into harmless matter. The panel's coating, which is super-hydrophilic, washes away the harmless particles when it comes in contact with rain or humidity. Thus, these panels not only help keep the environment clean, but also yield savings on maintenance costs.
Prefab Commercial Buildings: Another Cost and Material Saving Concept
Along with the new developments in building materials, there appears to be a resurgence of previously utilized cost efficient trends, such as prefab commercial buildings. The prefab market currently accounts for only 1 percent of the commercial building market, mostly limited to schools, hospitals, dormitories or retail stores. However, with the greater focus on materials conservation and reuse, as well as lower costs, modular construction is getting more attention.
A modularly-constructed building uses the same materials as a traditional one, but is made in a factory. In this controlled environment, buildings can be constructed more quickly with less waste. Nearly all contemporary buildings incorporate some prefabrication, with facades largely constructed off-site and windows and doors standardized. A developer can save up to 20 percent in construction costs with modular building, primarily from lower labor costs. The time saved is significant as well, since buildings can be constructed faster in a factory, with greater efficiency and a better coordinated production schedule. However, prefab does have the limitation of unfamiliarity for most architects, developers and contractors who are hesitant to take risks in an unstable market. A fully prefab building also requires every decision about the building be made before construction begins. The third issue is that the building must be designed so it can fit in containers that meet Federal Highway Administration regulations. If these issues can be overcome, the lower cost and faster production time of prefab building may aid in the recovery of the construction market.
As the construction and buildings materials industries continue to seek recovery from the economic recession, there appears to be hope in the rapid growth of the green building materials sub-sector. This growth satisfies both customer demand for environmentally sustainable products, as well as new governmental guidelines. Furthermore, utilizing new materials and greener processes can provide economic benefits to those who adapt. Innovations in commonly used materials such as steel and aluminum, along with the development of brand new materials, make this an evolving and exciting area of growth.
- Pegasus Capital Group Announces New Additions to the Team
Los Angeles, CA - April 2011
Pegasus Capital Group (“Pegasus”) is pleased to announce the addition of Bryan Miller and Michael Cashin as Associates of the firm. Mr. Miller is responsible for originating, executing and managing transactions at Pegasus. Mr. Cashin is responsible for transaction origination and analysis at Pegasus.
Mr. Miller’s private equity experience includes working as an Associate at Revolution Capital Group, where he focused on business development and deal analysis. Previously, Mr. Miller worked for International Creative Management where he was responsible for generating, evaluating and closing entertainment and media deals. Mr. Miller received a B.A. from Yale University and is currently attending the Fully Employed MBA program at the Anderson School of Management at UCLA.
Mr. Cashin joined Pegasus in 2011 after receiving his MBA from Pepperdine University. Prior to joining Pegasus Capital Group, Mr. Cashin worked for Mohr Partners sourcing and analyzing real estate investment opportunities matching his clients’ specific investment criteria. Before Mohr Partners, Mr. Cashin worked for SIG Equity Partners where he raised equity for a variety of niche real estate funds. Mr. Cashin holds a B.S. in Business Administration from Pepperdine University.
- Pegasus Capital Group Newsletter vol. 2, "Divestitures Rising"
Los Angeles, CA - November 2010
Off to the Races
It looks like M&A professionals ought to quit their day jobs and move to Las Vegas. If you had wagered that corporate divestiture activity in 2010 would be on the rise, right now you’d be wishing you had bet the farm. Last year in two separate polls, PricewaterhouseCoopers (PwC) and KPMG LLP (KPMG), together with The Deal LLC (The Deal), surveyed nearly 600 industry professionals regarding both overall M&A activity and divestiture volume in 2010. Not only did respondents foresee a rise in the volume of deal activity, but divestitures were predicted to be a larger slice of the M&A pie. Those predictions have been confirmed.
Divestitures are often difficult transactions to close, but the benefits can outweigh the challenges. Despite the arduous process, divestitures are increasing as corporations refocus their core operations and buyers perceive attractive investment opportunities.
Predicting the winner
Recently, KPMG and The Deal surveyed M&A professionals from both public and private companies, as well as private equity funds. Approximately 70% said they were more optimistic about the deal environment in 2010. PricewaterhouseCoopers also surveyed 215 C-suite and corporate development executives from public and private companies, as well as private equity/venture capital professionals to gauge the expected deal environment, specifically in the divestiture arena. Admittedly, this is partially due to the glut of companies waiting to be spun off, as 61% of respondents reported divestiture activity was reduced or deferred in the prior 12 months. However, the report suggests “an increasing emphasis [on] refocusing, restructuring and reorganizing…particularly in terms of analyzing the appropriateness of acquisitions made in the last 10 years.”
iStockAnalyst’s editor supports this outlook. “There are three principal reasons why I believe we may see more divestitures by conglomerate businesses. First, interest rates and the financial environment are comparatively benign across the world while the operating environment and the ability to squeeze more from customers are relatively not so benign. So it makes sense for conglomerate businesses to divest low profit/or high capital intensive businesses and invest those proceeds in high profit/low capital intensive businesses. Second, it doesn't make much sense for a conglomerate to hold on to a business which it can't successfully defend against the competition. Third, the stock market shows a tendency to undervalue the stocks of conglomerate businesses. This will not be much of a problem when the stock markets are on the rise, but it will affect the conglomerates financial profile when stock markets are uncertain or when they are in the bear grip.“
The KPMG and The Deal survey was also bullish on 2010’s divestiture environment. Those who foresaw an activity boost said, “…the primary reason for holding this opinion was that corporations continue to desire to sell off noncore or non-performing businesses.” Strategics will be the primary acquirers of these divested assets, according to 56% of the participants, thanks to continued tightness in the credit markets and corporations’ willingness to offer higher multiples.
The results are in
Deloitte’s data does in fact indicate increased divestiture activity for the first half of 2010. Divestiture M&A News reports that from 1H 2009 to 1H 2010 the total value of divestiture transactions increased nearly 60 percent, driven by a higher average size for divestitures of 35 percent.
The hurdles they overcame
The growth in completed divestitures is even more impressive considering the challenges in the current economic climate. Unlike three to five years ago when capital was flowing freely, strategics and lenders now perform more exhaustive due diligence, requiring more access and greater information. Add to these hindrances the rise of a valuation gap between buyers and sellers, and you begin to get a sense of a difficult environment for any transaction. PricewaterhouseCoopers’ article, “Divestitures in Difficult Times” reiterates this idea: “The demand by potential buyers for increased access and information was seen as a driver of the extended time frames, again consistent with the limitations of credit and valuation gap that are driving the behavior of buyers.”
Further underscoring the impressive number of divestitures is the fact that divesting of a company is not something corporations are very adept at doing. According to PwC’s survey, 46% of companies said their acquisition process was better defined than their divestiture process; and 39% said they had no formal pre-divestiture review process at all. Additionally, unlike selling standalone entities, respondents said two of the top difficulties with divestitures are separating the business from the parent and producing carve out financial statements / recasting historical data.
The year-to-date rise in divestitures was far from a sure a bet. Despite continuing challenges, the percentage of divestitures has risen at a faster pace than total deal volume and value. If the trends of the first half of 2010 continue, this will become even more the case. In fact, a recent Intralinks / mergermarket report on the global M&A market states that 90% of the 160 senior M&A professionals surveyed predict North America’s corporate restructuring to either increase or remain the same in the next twelve months.
- Pegasus Capital Group Transaction Announcement - SPG International, LLC
Los Angeles, CA - September 2010
Pegasus Capital Group (“Pegasus”) is pleased to announce that, along with the existing senior management team, it has completed the acquisition of the Storage Products Group division from Leggett & Platt, Inc. (NYSE: LEG). This acquisition will mark the eighth for Pegasus and strengthens the firm's preference toward investing in businesses focused on engineered products and industrial services & applications. Pegasus partnered with the company’s President and CEO, Steven E. Darnell, a seasoned industry executive who will retain that position with the new holding company, named SPG International LLC (“SPG” or the “Company”).
SPG is the leading single-source provider of storage solutions to the foodservice, retail and industrial material handling industries. The Company manufactures and supplies products in four key mediums: wire, stainless steel, aluminum and steel, which allow it to offer a broader product range than of any of its competitors. SPG leverages its extensive product lines and related services to create customized solutions that address the specific needs of its customers. The Company’s extensive product customization capabilities and patented products provide SPG with a significant competitive advantage.
The Company’s five strategically located domestic and international manufacturing and distribution facilities allow it to respond quickly to customer inquiries and meet accelerated lead times. In addition, the Company’s sales force works closely with customers to develop superior storage solutions that satisfy their individual requirements for product functionality. SPG’s differentiated product offering, coupled with its strong customer service, has enabled the Company to develop excellent relationships with premium national accounts, including McDonald’s, Starbucks, Costco, YUM! Brands (A&W, KFC, Long John Silver’s, Taco Bell), Kroger and Target. SPG is headquartered in Atlanta, Georgia and has approximately 300 employees.
“We are delighted to have partnered with Pegasus Capital Group,” commented Steven Darnell, President and CEO of SPG. “We look forward to taking the next step in our Company’s worldwide growth with the resources and experience Pegasus brings to SPG.”
Patrick Whelan, Managing Partner at Pegasus, said, “We are excited to partner with Steve Darnell and SPG’s highly motivated management team who have proven themselves by increasing profitability despite this challenging economic environment via superior customer service and developing innovative solutions that have allowed them to gain market share. Pegasus looks forward to being part of SPG’s very bright future.”
- Pegasus Capital Group Newsletter volume 1 "China Disappoints"
Los Angeles, CA - April 2010
U.S. Companies Rethink Outsourcing to China
For the last several years, conventional wisdom has held that moving manufacturing operations to China from the United States was a smart move that could return significant savings in costs of goods sold. However, recent industry trends indicate that more and more companies are making the decision to keep manufacturing stateside. Even more telling? Some companies are actually deciding to move operations back to the U.S. from China.
The promise of cheap labor
Key to understanding why many American companies are moving from outsourcing to "in-sourcing" is to first address the question, why is manufacturing in China so appealing? The short answer lies in the abundance of cheap labor in a growing industrial complex hungry for outside business. Despite obvious drawbacks to manufacturing in China (long shipping distances, significant lead times, etc.) any labor-intensive goods produced in adequate volume that could be affordably shipped seemed like ideal candidates for Chinese production.
The initial challenges in setting up operations in China proved to be significant. American firms faced large upfront investments in time, effort and travel expenses; and the cultural, language and even time zone barriers were not easy to bridge. But once these investments were made and the cheap goods started rolling off the manufacturing line, the investments paid off. At least at first...
An emerging market is a fragile market
Early movers into China may have saved money on labor, but they also learned hard lessons about moving critical operations to a developing economy. According to Ralph Keller, President of The Association for Manufacturing Excellence, "Many companies today are rethinking their off-shoring strategy due to escalating costs, quality concerns, the long lead-time required and the fact that they have not realized anywhere near the savings they had anticipated due to the hidden costs of managing suppliers half way around the world."
Charlie Barnhart, Co-founder and Managing Principal at Charlie Barnhart and Associates LLC, a company that studies outsourcing, added that "China has a fragile supply chain. During this economic downturn, thousands of companies have gone out of business in China. Companies call their suppliers to see what's going on and nobody answers the phone." In addition to an unpredictable supply chain, the long lead times associated with poor infrastructure and the great distance from the manufacturer to the consumer make it difficult for companies to meet fluctuating demand for their products.
In an emerging market, things change quickly
As more manufacturing moved to China, the law of supply and demand inevitably kicked in, causing increased demand for labor and upward pressure on wages. According to a recent article in the New York Times, labor shortages are now rampant in China, caused by a booming economy and the rapid expansion of factories even though the number of Chinese workers entering the workforce has leveled off.
Austin English, President of RCF Associates, a manufacturing consulting company, stated that "due to the economic slowdowns of last year, many of the people working in affected factories in China went back to [the rural interior of the country] and have not returned. This has brought a local bidding war for the remaining employees and has forced one of our clients to budget for a 30% pay hike in 2010."
In addition, the cost of shipping goods back to the U.S. has skyrocketed due to a shipping capacity shortage and rising energy prices. According to an article in the China Economic Net, freight prices doubled in the 30 days leading up to December 2009. Stephen Sykes, Vice President of Marketing for Artco-Bell Corp., a producer of classroom furniture for children, said that his company's shipping costs for a single container have increased from $2,200 to over $7,000 over the past eight years.
The effect of these labor and shipping shortages is an overall upward pressure on costs that make China less appealing as an outsourcing partner. According to EDN.net, manufacturing in China is 15-20% more costly that it was just four years ago.
Intangible costs of manufacturing in China
There have been other, less tangible costs tied to manufacturing in China. Our media have broadcast reports about contaminated pet food and lead paint on children's toys from China. Unfortunately for the U.S. companies affected, saving a few dollars on labor has cost them an incalculable amount in negative PR and lost consumer trust. For other firms, shoddy manufacturing has quietly eroded brand equity.
Still other companies have fallen victim to unscrupulous Chinese companies who take advantage of their underdeveloped intellectual property laws to steal their client's designs and produce counterfeit goods. The flood of cheap counterfeits on the local market all but prevents American firms from introducing their own products to the growing Chinese marketplace.
Back to the U.S.A.
Of course, wages in the U.S. are still several times those in China, and will remain so for some time. To a growing number of companies, however, the benefits of moving operations back to the U.S. are compelling.
For some companies, the higher shipping costs alone are enough to sway them toward domestic production. For others, the stability and skill level of the U.S. labor market, the easy scalability of production in U.S. factories, and the ability to exercise greater quality control are critical factors that keep them at home or bring them back. A contribution to the local economy and the ability to say "Made in the U.S.A." are powerful brand equity builders as well.
Case Study 1:
Artco-Bell Corp of Temple, Texas is a children's furniture manufacturer. The company recently moved production of all steel and polypropylene goods from China back to the U.S. While the move actually increased their per-unit manufacturing cost, the elimination of the long ocean voyage between the U.S. and China has reduced their total expenses by 20%. Stephen Sykes, Vice President of Marketing, commented that "For a while, [the Chinese] were buying steel better than we could buy steel. But as the scales began to balance as far as what they were purchasing in raw and what we were purchasing in raw, then the freight became the issue. The great equalizer is the boat ride back over."
Case Study 2:
Sauder Woodworking Co. of Archbold, Ohio provides products to Wal-mart, Target, Lowe's, and other large retail stores. In recent years, the company has experienced intense competition from foreign companies along with increasing pressure from their customers to meet shorter delivery times with lower inventory levels. Norm Hoeppner, Vice President of Procurement, says that these factors have led Sauder to reassess their supply chain and move some elements of production to local manufacturers. According to Hoeppner, "one of our biggest strengths is our flexibility and speed of service to our large retail customers. We can't meet this service when it takes three months to obtain parts from offshore."
What's the future of worldwide manufacturing?
If the trends of higher labor and shipping costs combined with the lower quality and legal standards in China continue to play out, they will increase the shift back to domestic production. Manufacturing companies in the U.S. have a significant opportunity to win back contracts from China, and they should do what they can to position themselves to be more competitive.
Perhaps Harry Kazazian, Chief Executive Officer of Exxel Outdoors Inc., a top U.S. producer of outdoor recreational gear, said it best. "You're never going to have $2-an-hour labor in the United States," he commented, "but with quality, time, efficiency, you close the gap."
- Pegasus Capital Group Transaction Announcement - American Piping Products, Inc.
Los Angeles, CA - December 2008
Pegasus Capital Group ("Pegasus") is pleased to announce that American Piping Products, Inc. ("APP") has received a multi-million dollar growth equity investment from a leading private equity consortium. In conjunction with Pegasus, the equity investment was led by The Edgewater Funds and APP's senior management and included Stewart Capital Management and The Courtney Group.
APP is a rapidly growing distributor of specialty steel pipe, fittings and flanges to global infrastructure customers in the energy, manufacturing and construction industries. APP is recognized for its in-stock availability of niche products that meet its customers' demands in a complex, international supply chain. APP sources and stocks inventory from a worldwide network of qualified producers and suppliers with whom it enjoys long-standing relationships. Other services include logistics support, quality assurance, export packaging, production saw cutting and same day shipments.
The investment positions APP for continued growth by providing capacity for expanding its product offering. Since its founding in 1994, APP has developed a strong competitive position in the supply of heavy-wall, seamless pipe. The company currently employs 34 people in its headquarters in Chesterfield, Missouri; its service center in Houston, Texas; and sales office in Philadelphia, Pennsylvania.
- Pegasus Capital Group Announces New Addition to the Team
Los Angeles, CA - October 2008
Pegasus Capital Group (“Pegasus”) is pleased to announce the addition of Stephen Hsu as an Associate of the firm. Mr. Hsu is responsible for originating, executing and managing transactions at Pegasus.
Prior to joining the firm in October, 2008, he worked as an Associate with Cappello Capital’s Investment Banking division in Los Angeles. Prior to Cappello, Mr. Hsu was a Mergers & Acquisitions Analyst at UBS Investment Bank as well as a Corporate Finance Analyst with Thomas Weisel Partners, both in New York. Mr. Hsu’s assignments included mergers and acquisitions, private placements and public equity offerings in a wide variety of industries. Mr. Hsu began his career with Lehman Brothers as an Equity Research Analyst focusing on specialized medical devices. He is a member of the Duke University Southern California Alumni Association and holds a B.S. in Economics with a certificate in Markets and Management Studies from Duke University.
- Pegasus Capital Group Transaction Announcement - Ajax Rolled Ring & Machine
Los Angeles, CA - April 2008
In conjunction with Prospect Capital Corporation (“Prospect Capital”) and Stewart Capital Management, Pegasus Capital Group (“Pegasus”), is pleased to announce the $39.8 million recapitalization of Ajax Rolled Ring & Machine (“Ajax”), a custom forger of seamless rolled steel rings.
Ajax operates two ring rolling mills and provides value-added services including engineering, heat treating, shot blasting and machining. The rolled rings are used in construction equipment and in machinery for military, power-generation, petrochemical and industrial applications. Ajax manufactures its products in a 140,000 square-foot facility located in York, South Carolina.
Prospect Capital, a mezzanine debt and equity firm, provided $39.8 million in first- and second-lien debt and equity for the transaction. The equity interest in Ajax was purchased from Dogwood Equity, a private equity firm based in North Carolina. Senior managers of Ajax also invested in the transaction.
- Pegasus Capital Group Announces Sale of Portfolio Company - Calwax Corporation
Los Angeles, CA - October 2007
Pegasus Capital Group (“Pegasus”) is pleased to announce the sale of its portfolio company, Calwax Corporation (“Calwax”), to REMET Corporation (“REMET”). As a subsidiary of REMET, Calwax will be able to expand rapidly and strengthen its position in the specialty wax market. “Calwax is a strategic acquisition that will add critical mass to our growing Enhanced Wax Products business, ” said John Paraszczak, President of REMET.
Calwax is a leading blender and wholesale distributor of wax and wax products for a broad range of industrial and commercial uses. The company provides custom wax applications to domestic and international companies in a number of niche markets, including candle, cosmetic, casting, dental, wine and packaging. Calwax was founded in 1965 and is based in Irwindale, CA. For more information, please visit www.calwax.com.
REMET is a leading manufacturer and distributor of waxes, binders, refractory grains and other investment casting consumable products. In addition, the company manufactures and distributes denatured alcohol products to the food flavoring, cosmetics and pharmaceutical industries. With headquarters and research & development facilities in Utica, NY and operations in Mesa, AZ, La Mirada, CA and Rochester, UK, REMET has long-term relationships with more than 1,000 customers throughout the world. For more information, please visit www.remet.com.
- Pegasus Capital Group Announces Sale of Portfolio Company - TOG Manufacturing Company, Inc.
Los Angeles, CA - December 2006
Pegasus Capital Group (“Pegasus”) is pleased to announce the sale of its portfolio company, TOG Manufacturing Company, Inc. (“TOG”) to New England Capital Partners, a Boston-based private equity investment firm. TOG is a major provider of specialized machined components for the power generation and nuclear submarine industries. The company offers fasteners, rotor studs, valve components, bushings and various precision nitride parts. TOG was founded in 1982 and is based in North Adams, MA. For more information, please visit www.togmanufacturing.com.
- Pegasus Capital Group Transaction Announcement - Shield Pack, LLC
Los Angeles, CA - January 2005
Pegasus Capital Group, in conjunction with Tuckerman Capital, is pleased to announce the acquisition of Shield Pack, LLC ("Shield Pack"), a producer of high-performance specialized liners and bags used by customers to ship and store high-value goods.
Incorporated in 1968 and based in West Monroe, LA, Shield Pack is the leading producer of moisture and oxygen barrier liners and bags for commercial intermediate-sized bulk containers. In addition to its focus on gradually expanding its core dry chemicals and resins business, Management also aggressively pursues opportunities in the liquid liner and corrosion protection sectors in order to further grow and diversify the Company's revenue base. For more information, please visit www.shieldpack.com.