In the world of Dallas-Fort Worth mergers and acquisitions, call 2014 the year of the energy deal. Some 26 M&A energy transactions involving at least one North Texas party and worth at least $120 million closed last year, according to a D CEO analysis of Thomson Reuters data. The total value of those energy deals— $28.6 billion—outstripped all other M&A industry sectors last year.
While “energy spending will certainly slow in 2015,” says S. Scott Parel, a partner in the Dallas office of Sidley Austin LLP, another observer notes that private equity firms are still sitting on capital—they call it “dry powder”—that will need to be deployed in the sector. “They will be looking to pick up some bargains if commodity prices remain low,” says Amy R. Curtis, a partner in the Dallas office of Thompson & Knight LLP.
And, those lower commodity prices are benefiting other M&A sectors. Chris Converse, the Dallas-based partner and chairman of Gardere’s securities and corporate governance team, says his firm is seeing a number of manufacturing companies in play. “That’s probably part of a larger nationwide trend in which capital has been flowing back into the U.S. manufacturing sector due to a variety of factors, including lower energy and transportation costs,” says Converse, who’s also a member of Gardere’s private equity industry team.
We are proud to honor the companies and the dealmakers who helped make 2014 such a robust year with our 2015 Mergers and Acquisitions Awards, presented by D CEO and the Association for Corporate Growth. On the following pages, you’ll find profiles of the finalists for these awards. We’ll reveal the winners at an event in May.
Our judges for this year’s program were: Tony Banks, director, business development, Hein & Associates; Michael Ehlert, senior vice president and region manager, Capital One Business Credit Corp.; Robert Kibby, shareholder and section head of corporate securities, Munsch Hardt Kopf & Harr PC; Jeff Noland, founder, chief operating officer, and chief financial officer, DartPoints; and Eric Williams, partner, Haynes and Boone. We appreciate their help.
Chalak Mitra Group, acquisition of Elephant Bar
Sometimes one of the biggest hurdles to getting a deal done is the logistics of getting all parties together in one room. Take the 2014 acquisition of Elephant Bar, a Costa Mesa, California-based chain of 29 casual dining restaurants, by Dallas-based Chalak Mitra Group. Chalak Mitra owns, operates, and franchises more than 300 restaurant outlets in 35-plus states under brand names such as Genghis Grill and Baker Bros. Deli.
Elephant Bar was selling all its assets through a bankruptcy auction, with a short timeline for getting the transaction done of just 30 days.
Dealing with the headaches of having to learn California bankruptcy procedures on the fly was tough enough. Adding to the logistical challenges: Elephant Bar’s senior debt holder, Cerberus Business Finance, was based out of New York.
“It was our first deal buying a company out of bankruptcy,” says Al Bhakta, Chalak Mitra’s managing partner.
To cope, the Chalak Mitra brass leaned hard on its attorneys at Wick Phillips, who helped persuade Cerberus to not only take a discount on how much it was owed on the debt it held, but also to be a lender for the new version of Elephant Bar that emerged from the process.
In conjunction with the deal, which closed in August, four senior level Elephant Bar employees are moving to Dallas, and Chalak Mitra is hiring another dozen or so here as well.
The good news for the 2,000-plus Elephant Bar employees is that Chalak Mitra is making changes to the chain that workers have wanted, including some involving the menu and compensation packages. “It’s still fairly early, but the teams in the field are happy and going in the right direction,” says Bhakta. “That’s the most important thing in the restaurant business.”
The Countersource Inc. Merger with Royal Baths
The goal of every company is to grow. But growth brings challenges of its own. That was becoming clear at The CounterSource Inc., an Irving firm that fabricates and installs custom countertops. Founded in 1996, the company’s revenue grew from $7 million to $12 million in 2012. That meant the business needed access to capital to go to the proverbial next level.
That was the driver for The CounterSource’s acquisition last year by Houston-based Royal Baths Manufacturing Co., a maker of bathtubs, shower bases, and cultured marble products.
For Royal Baths, the deal provided fabrication operations in granite, laminate, and solid surface countertops, areas where it didn’t do work before, according to John Hanna, who was The CounterSource’s owner and is now president of the combined operation. “It gave them more products to deliver to their customers,” he says.
The CounterSource, which has 55 employees, will eventually be integrated into Royal Baths, which has closer to 350, Hanna says. No layoffs are planned, he adds, with sales representatives from the two firms currently being cross-trained to peddle all the products the combined entity will offer.
Even better, the new Royal Baths has expansion plans. The combined company is moving to sell its wares in Austin, where it will add another five or 10 people, and in more areas of Houston, where it could add another 10 to 20 people as it grows later this year or in early 2016, Hanna says. “We needed the infrastructure to help us handle significant growth,” he says of The CounterSource. “Royal Baths has that.”
Future Telecom Acquisition By Tower Arch Capital
In 1999, a pair of North Texas entrepreneurs, Don Riggs and David “Jocko” Helmers, launched a Mesquite construction business for the telecommunications and energy industries called Future Telecom. By 2014, the pair was enjoying enormous success and was ready to cash in some of their chips. Helmers, who was the minority stakeholder, wanted to retire; Riggs, the majority owner, wanted to get his son some equity in the firm and also find a partner who could help grow the company.
After talking with several parties, Riggs and Helmers settled on a Salt Lake City, Utah-based private equity firm, Tower Arch Capital.
After a reorganization of the ownership structure of Future, which had 120 employees, everybody got what they were looking for.
Helmers managed to get a windfall for his stake in the business, and was able to ride off into the sunset. Riggs stayed aboard as Future’s chief executive, while also securing a strong employment agreement and both equity and a leadership position in the company for his son.
Tower Arch, meanwhile, nabbed an investment in a business that has exceeded its performance objectives by more than 20 percent. Future Telecom’s backlog and projections for 2015 alone should support 55 percent growth for a 30-month period, according to officials of Allegiance Capital Corp., the Dallas investment bank that represented Future Telecom in the recapitalization. The Allegiance team on the deal included senior vice presidents Fred McAllister and Brent Earles. “Don Riggs is a clear thinker,” McAllister says. “That makes our job a lot easier.”
DataSpan had reached the point where it was time to move on. The Dallas-based company, which resells, installs, and maintains equipment used in data centers, was owned by another North Texas outfit, now called ShockWatch, which wanted to focus on other lines of business.
With annual revenue between $50 million and $100 million, DataSpan offers products and services that do everything from helping data centers use energy more efficiently and stay clean to storing and retrieving old information. It was a viable business, to be sure. It just needed some tender loving care to grow.
That TLC came in the form of a buyout sponsored by Bonefish Capital, a Dallas merchant bank. Bonefish’s managing partner and founder, Paul M. Zaidins, teamed up with his wife, Sharon, and two of his friends, Micky Tsui and Nancy Shemwell, to buy DataSpan.
“We didn’t have a big pool of outside capital,” Zaidins says. Instead, the group financed the deal largely by selling some of DataSpan’s accounts receivable to Florida’s LSQ Funding Group.
By selling accounts receivable—essentially, invoices that DataSpan had submitted to its customers for goods or services it had sold them—the new owners were able to avoid burdening the business with debt.
With the buyout done, the focus at DataSpan has shifted to growth. With Tsui in as CEO, Shemwell as chief operating officer, and Zaidins as board chair, DataSpan has added a new corporate office site, remodeled existing facilities, and moved some functions from Nebraska and Washington to Texas.
Acquisitions could be on the horizon as well, Zaidins says: “We think we can grow our sales force geographically and bring in new solutions and services.”
Longwater Opportunities, sale of Circuitronics Inc.
The conventional wisdom is that when a private equity firm buys a business, the investors will cut everything to the bone in the interest of making a fast buck by flipping the company within a short time frame.
The trio of 30-something guys who run the Dallas private equity shop LongWater Opportunities wants the world to know they do business differently. Exhibit A: LongWater’s roughly 5-year ownership of Irving’s Circuitronics Inc., which culminated in the December sale of the firm to Los Angeles’ Corridor Capital.
Circuitronics assembles what are known as printed circuit boards, which are the green boards inside electronic devices that hold components such as chips. Founded in the early 1970s, the company puts together printed circuit boards for customers who need the gear to last a long time. But by 2009, when LongWater bought it, Circuitronics had seen its growth stall. Its manufacturing equipment was outdated, and it was performing a lot of jobs with old technologies and old approaches.
So, LongWater’s team did something most unlike what private equity is known for: they spent money on the business. LongWater poured capital in the high six figures into new equipment, and invested in everything from inventory and accounting software to new salespeople. All told, Circuitronics’ staff grew from the high 20s at the time of LongWater’s buyout to closer to 75 when it sold the business.
Jordan Bastable, a LongWater managing partner, says he and his partners in the firm, Brooks Burgum and Will Dobbs, are out to build their portfolio companies up—not the other way around. “We’re interested in adding jobs and partnering with family-run businesses,” he says.
Acton Mobile Acquisition by Prophet Equity
Most every construction site has an office trailer, a single- or double-wide facility to house temporary administrative functions and storage.
But while the construction market has returned in many parts of the country, one of the largest renters of these office trailers, Baltimore, Maryland-based Acton Mobile, still had a hangover from a 2007 private equity buyout by Chicago-based Code Hennessy & Simmons LLC.
The deal had left Acton, which currently has 160 employees and about $60 million in annual revenue, with more debt than it could handle.
When the construction market cratered, the company saw a 65 percent drop in its earnings before interest, taxes, depreciation, and amortization. That caused a problem with one of its lenders, SAC Capital.
In addition, Acton lacked sufficient capital to buy new trailers, refurbish old ones, or move parts of its 10,000-unit fleet from areas of the country where use was low to areas like Texas, where demand was robust.
This sounded like an opportunity to Southlake’s Prophet Equity, a private equity shop that buys and turns around asset-heavy companies that are performing poorly but have growth potential.
With Acton’s Chicago owner winding down its fund, that left Prophet dealing with SAC. “Speed to closing and certainty of closing were more important than price,” says Brian Hegi, Prophet’s managing director.
After finalizing the deal in August, a mere three weeks after being awarded Acton, Prophet went to work on turning the business around.
That meant moving 250 rental trailers from low-utilization geographic areas, such as Orlando, Florida, to higher-use markets in Texas, Oklahoma, and Louisiana, according to Charles Collie, Prophet Equity’s senior executive director. Dallas, according to Hegi, is Acton’s fastest-growing branch.
Acquisition of Lone Star by General Finance Corp.
An age-old business adage says that during a gold rush, the business to be in is selling picks and shovels.
Out in the Permian Basin, the Lone Star Cos. follows that idea, only for the oil and gas industry. In 2014, the group of private investors who own the six-company group got a $95 million windfall by selling two of those companies, Lone Star Tank Rental LP and KHM Rentals LLC, to California’s General Finance Corp. (Nasdaq: GFN.)
The two businesses rent roughly 1,200 storage tanks for fluids used in hydraulic fracturing in the lucrative Permian and Eagle Ford shales of Texas. They also lease some oilfield equipment to energy companies there as well. (Widely known as “fracking,” hydraulic fracturing is a popular method for extracting oil and natural gas that is locked away in shale rock. It involves breaking apart the rock with a high-pressure combination of water, sand, and chemicals.)
The two tank rental companies that General Finance bought brought in about $45 million in the fiscal year ended Dec. 31, 2013. Trouble was, the Lone Star owners had simply lacked the financial resources to invest in new tanks to meet growing demand, according to John Sloan, vice chairman and partner at Allegiance Capital Corp., the Dallas investment bank that represented them in the General Finance deal.
The Midland group “had put all their financial resources into expanding the business,” Sloan says. “They needed a strong financial partner,” which they found in the California firm.
Parago Merger with Blackhawk Network
Many technology companies that launched during the tech boom of the 1990s never made it. One exception was a Lewisville business called Parago Inc., whose mission included helping other companies run their corporate rebate and cash-discount programs.
But while it had survived the technology bust of the last decade and had grown to around $100 million in annual revenue and several hundred employees, Parago had yet to achieve a payday for some key investors, including the New York-based venture capital firm TH Lee Putnam Ventures.
So, with the market ripe in 2014 for getting deals done, Parago went up for auction. With lawyers and investment bankers canvassing the landscape for buyers, Pleasanton, California-based Blackhawk Network (NASDAQ: HAWK) emerged as the winner, nabbing Parago in a deal worth a total of $290 million.
“Parago had a complicated capital structure with a large number of shareholders,” says Soren Lindstrom, a Dallas-based partner at K&L Gates who represented the company in the transaction. “This deal was also done on an accelerated basis to avoid leaks. It was finished faster than everybody thought possible.”
Blackhawk, which runs a pre-paid and payments technology network for items like gift cards, is keeping the Parago operation in Lewisville as a subsidiary, Lindstrom notes. Juli Spottiswood, who was Parago’s chief executive, is remaining with Blackhawk to run its incentive business.
Lindstrom credits both Spottiswood and Parago’s former general counsel and executive vice president, Ed Woodson, with being key to getting the Blackhawk deal across the finish line.
“They both worked really hard on this,” Lindstrom says.
Varel International Energy Services Acquisition by Sandvik
Since its founding in 1947, the Carrollton-based company now known as Varel International Energy Services has basically done one thing: manufacture drill bits, which are the cutting part of the tools. Varel’s drill bits are used in the oil and gas field and in mining and industrial applications.
Making drill bits may not sound sexy, but, over time, Varel has made a good-sized business out of it, with roughly 1,300 employees worldwide and 2013 revenue of about $340 million.
The thing was, Varel was getting big and needed access to low-cost financing necessary to go against large rivals. Plus, its Atlanta private equity owner, Arcapita Inc., had paid $369 million for Varel in November 2007 and needed to produce a return for its investors.
But before Varel could complete a planned public stock sale, the company ran into Sandvik AB. An engineering conglomerate with operations in tools and tooling systems, materials technology, mining, and construction, Sweden-based Sandvik wanted to build a business that could grow in conjunction with the new oil and gas boom.
The result: Sandvik snapped up Varel for about $740 million. Varel is now part of a Sandvik business area called Sandvik Venture and is keeping its Carrollton base, where it is adding six to eight high-level business leaders, mostly in finance and business development.
“We’re continuing to invest in the core business” of Varel, says Jim Nixon, the Carrollton group’s president and chief executive officer. “We’re also in the market for good synergistic acquisition opportunities for our oil and gas services platform.”
Solera Holdings Inc., Acquisition of Pittsburgh Glass Works Division
Getting into an auto accident is no fun. Dealing with the insurance claim afterward can be trying as well.
Solera Holdings Inc. (NYSE: SLH) may not make automotive claims fun, but at least it helps make the process faster, cheaper, and more efficient. The Westlake company provides a range of technology and services that help automate the claims process, from getting repair estimates to handling recycling and salvage of cars.
So it made sense for Solera to snap up the insurance and services division of Pittsburgh Glass Works LLC.
Although Pittsburgh Glass makes and distributes automotive glass products like windshields and sunroofs, its insurance and services unit provides a range of snazzy technology and services, mainly centered on the glass portion of the automotive claims market. Its offerings range from software that helps glass retailers better manage their businesses to technology that helps electronically link up insurers, parts suppliers, and retail glass installers.
The $280 million all-cash purchase means that the combined business provides technologies and services to process about a third of the 18 million partial-loss and glass claims that occur in the United States every year. That is a roughly $30 billion total market, according to Solera.
The deal also expanded the company’s global staff by about 25 percent. It had 3,638 workers worldwide as of June 30 of 2014, before the deal closed. Solera plans to move the U.S. headquarters of the Pittsburgh Glass unit to North Texas, bringing in the group’s national executive team and creating more jobs locally.
Crosstex Energy Inc. Merger with Devon Energy Corp. To Create EnLink Midstream Partners
in the recent oil and gas boom, crosstex Energy had done well. But times were changing, and the pair of interlinking pipeline companies (collectively known as Crosstex Energy) had to change with it.
Crosstex was what’s known as a “midstream” energy business, meaning it builds and runs pipelines that move oil and gas from one place to the next. While there was no shortage of demand for its services, the space was getting more competitive, and Crosstex needed access to lower-cost capital that comes with being big.
That was what brought Crosstex to the altar with Oklahoma-based Devon Energy Corp. Devon was a public company that was primarily in the “upstream” end of energy, meaning it punched holes in the ground to pull out crude oil and natural gas, along with refining the fuel to remove impurities and separate out component gases like propane.
Combining the two businesses in a $5 billion transaction resulted in a pair of new publicly traded, Dallas-based companies: EnLink Midstream Partners LP (NYSE: ENLK) and EnLink Midstream LLC (NYSE: ENLC). The two EnLink entities had roughly $700 million EBITDA, along with everything from 7,300 miles of gathering and transportation pipelines and 13 processing plants to barge and rail terminals and a large trucking fleet to carry the crude oil.
Plus, the structure of the resulting business provided tax advantages for all involved, especially shareholders. The EnLink companies plan to move their headquarters to the Dallas Arts District in 2016. “It was a real winner,” says Douglass Rayburn, a Dallas-based Baker Botts partner who worked on the deal. “It was a good process.”
Darling Ingredients Inc. Acquisition of VION Ingredients
The roots of Irving’s Darling Ingredients (NYSE: DAR) date back to 1882. Yet until 2014, the business, whose mission includes turning used cooking oil animal byproducts into feeds and biofuels, operated only in the United States.
That changed with a pair of acquisitions Darling did, most notably the $2.2 billion deal in January 2014 for the Netherlands’ VION Ingredients, a unit of VION Holding NV. Last October, Darling also picked up Rothsay, a unit of Canada’s Maple Leaf Foods Inc., for about $613.6 million.
“Darling is a growth-oriented company,” says John F. Sterling, the company’s executive vice president/general counsel and secretary. “Our strategic plan is to grow the business internationally.”
The VION deal in particular fit the bill. In addition to giving Darling operations everywhere from Europe and Latin America to South America, China, and Australia, the VION business “had a world-class management team in place,” Sterling says.
David Luther Jr., a Dallas-based K&L Gates partner who helped coordinate the work of multiple law firms on the deal for Darling, noted that the global reach of VION’s operations created a challenge in performing due diligence. Complicating things further was the fact that multiple bidders were after VION and the timeline was short. But, led by chairman and CEO Randall Stuewe, the Darling team won.
Darling now has more than 140 production facilities and 10,000 employees on five continents. Says Sterling: “It was quite an undertaking.”