American Tire Distributors

Situation

Founded in 1935, American Tire Distributors is the nation’s largest wholesale tire distributor, with revenue of $1.1 billion. In late 1998, the family decided to sell the business for estate-planning purposes. Management wanted to find a compatible investment group that would help them achieve the family’s financial goals through a leveraged buyout.

Transaction

In May 1999, Charlesbank was the lead investor in the $243 million leveraged buyout, investing $44 million for a 62% controlling interest. To date, we have invested a total of $79.3 million in connection with the initial acquisition, add-on acquisitions and recapitalization of the company.

Charlesbank Role

We structured a transaction that met the family’s financial objectives, management’s desire to retain a meaningful stake and the need to have a controlling shareholder capable of continuing an aggressive growth strategy. As members of the board, we are closely involved in helping ATD execute against its long-term strategic plan, including evaluating add-on acquisitions to expand its geographic reach.

Results

ATD’s business grew significantly during Charlesbank’s ownership period. Revenue increased 50%, driven by organic growth and follow-on acquisitions, and EBITDA doubled, reflecting economies of scale and active cost management. ATD also solidified its strategic position by expanding its geographic footprint and divesting its retail division to focus solely on tire distribution. In March 2005, we sold ATD to Investcorp for $710 million.  Total proceeds of $323.5 million represented a 4.1x return on the $79.3 million investment.

Aurora Organic Dairy

Situation

Aurora operates two large dairies in Platteville, CO, and Dublin, TX, and a fluid milk-processing plant at the Platteville location. In 2003, Aurora was looking to arrange a broad recapitalization of its conventional dairy operations and seeking new capital to convert one dairy to organic milk production and processing. After preliminary due diligence, Charlesbank focused the company on a transaction centered only on the organic dairy opportunity. CEO Marc Peperzak brought significant experience to the deal, having co-founded Horizon Organic, a leading organic dairy company.

Transaction

In August 2003, Charlesbank led an $18.5 million capital raise, investing $18 million to fund working capital needs and the construction of a milk-processing plant at the Colorado dairy. Follow-on investments totaling $12.6 million in June 2004 and February 2005 funded the purchase of the Texas dairy and working capital. Charlesbank holds a 64% equity interest in Aurora.

Charlesbank Role

We worked closely with senior management during due diligence to create and validate Aurora’s organic dairy business plan. Charlesbank has board representation and actively advises on strategy regarding Aurora’s operations and capitalization.

Results to Date

In Colorado, Aurora received full organic certification and completed construction of its milk processing plant in July 2004. The company began shipping its first packaged milk to customers in August 2004. In July 2004, the Texas dairy began its organic conversion, which should be 100% complete by early 2006.

GSI

Situation

GSI, based in Assumption, IL, is a leading global manufacturer and supplier of equipment to the grain, poultry and swine industries. In 2002, Charlesbank became interested in GSI after attempting to purchase a competitor, and we proactively contacted GSI’s majority shareholder to discuss a buyout transaction. At the time, he was not ready to sell the company, but we were well-prepared when GSI began to pursue strategic alternatives in late 2004.

Transaction

In May 2005, Charlesbank purchased GSI for approximately $200 million, with a significant co-investment by the senior management team. We invested $48.6 million to purchase a majority of the equity.

Charlesbank Role

We structured the investment, led the due diligence process and structured and raised the required debt financing. We partnered with manufacturing veteran Bill Branch to identify opportunities in the company’s manufacturing operations during due diligence. Upon closing, Mr. Branch became Chairman of the company and we worked together to transform the company’s approach to manufacturing, supply chain management and distribution, while retaining its strong market position and product offering to customers.  As a result of our joint efforts, the company has been able to take advantage of highly favorable growth dynamics in its end markets and achieve record revenue and profits during our hold period.

Results to Date

In August 2007, Charlesbank sold the majority of its equity interest in GSI to Centerbridge Partners, retaining a 20% ownership stake and board representation.

Regency Gas Services

Situation

In late 2002, we partnered with David Biegler, former CEO of ENSERCH, to source energy investment opportunities in the mid-stream sector. Charlesbank and our management partners identified several gas-gathering, processing and intrastate pipeline assets owned by El Paso, some of which had been owned and operated prior to their sale to El Paso by a management team that we recruited for this effort.

Transaction

In June 2003, we partnered with management to purchase these El Paso assets for $125 million, a very attractive multiple of our underwritten EBITDA. Charlesbank’s investment totaled $56 million, with management investing $1.5 million. We also raised $72.5 million of debt from Wells Fargo.

Charlesbank Role

We structured the investment, raised the required debt financing and led the due diligence process, including a bottoms-up build-up of the income statement (necessitated by lack of audited financials). As board members, we actively helped evaluate acquisition opportunities and establish strategic direction.

Results

Management improved Regency’s financial performance during the first year, largely by renegotiating contracts that were below market and by aggressively contracting with producers to hook up newly drilled wells near our asset base. There were two add-on acquisitions in 2004, which resulted in almost a doubling of EBITDA, with a 20% increase in our investment. In December 2004, we sold Regency to Hicks, Muse, Tate & Furst for $405 million. Our proceeds of $238.6 million represent a 3.6x return on the $65.9 million investment. 

Shoppers Drug Mart

Situation

Founded in 1962, Shoppers Drug Mart is the largest full-service drugstore chain in Canada. With more than 925 locations, the company is one of the most recognized names in Canadian retailing.

Transaction

In 1999, Charlesbank assembled an initial bidding group in an attempt to preemptively purchase the chain from its corporate parent. When that approach was unsuccessful, our group joined with KKR in a successful purchase of the company in February 2000. Charlesbank structured the investment to include C$1.8 billion of senior and subordinated debt, as well as approximately C$900 million in equity provided by the equity sponsor group, the management team and franchisees. Charlesbank invested C$73 million, or US$49.6 million.

Charlesbank Role

We led the business, accounting and legal due diligence through the second phase of the auction. Post-acquisition, the incumbent CEO stepped down, and Charlesbank identified a new CEO who led a successful reorganization of the business, including significant cost reductions, a strong private label initiative and an aggressive new-store and upgrade program. We also helped Shoppers recruit other key executives and prepare for its IPO in 2001.

Results

Shoppers completed a C$540 million IPO in November 2001 at C$18 per share, a marked increase over our cost of C$5 per share. The company is a member of the TSE 60 Index and has delivered its balance sheet to earn an investment-grade credit rating. Charlesbank sold shares in secondary offerings and block trades for total proceeds of US$269.5 million. We exited the investment in November 2005 with a 5.4x return on our US$49.6 million investment.

Universal Technical Institute

Situation

Founded in 1965, Universal Technical Institute is the leading provider of automotive, diesel, motorcycle and marine technician-education services in North America. In late 2001, Charlesbank worked with UTI’s founders and existing equity partner to structure a recapitalization. Through this transaction we and Roger Penske, a Charlesbank CEO partner and Fund V investor, provided equity to pay down debt and provide liquidity for future growth.

Transaction

Charlesbank and Penske Capital Partners organized a $45 million recapitalization of UTI, in which Charlesbank invested $24 million. As part of the recapitalization, UTI also closed a new $70 million bank facility.

Charlesbank Role

We and Penske Capital structured, negotiated and conducted due diligence on the transaction. After closing, we actively assisted management in prioritizing growth opportunities, identifying operating and process improvement opportunities, and guiding UTI through the IPO process. (NYSE Ticker: UTI)

Results

UTI has demonstrated solid revenue and earnings growth, and enrollment continues to be strong. The company went public in December 2003. An eighth campus, in the Northeast, opened in mid-2004. We sold our interest in the IPO and subsequent secondaries, exiting in early 2006. Final proceeds totaled $135.4 million, for a 5.6x return on investment.