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Industrials Sector Advisory Insights: Gearing up for the future

Selected highlights of sector-specific advisory activity happening across North America right now.

Garrett Motion shareholders map turbocharged recovery path with advisors in tow

A group of Garrett Motion equity holders has tapped law firm Kasowitz and Pericles Capital Advisors for assistance mapping out a recovery path, according to two sources familiar with the situation. The group is also in talks with third-party investors about potential financing, the sources added.

The organization comes as the shareholders argue that a duo of competing bids for the company severely undercut the value of the debtor. Andrew Glenn at Kasowitz is representing this particular group, sources added. The group plans to seek official equity committee status, said two additional sources.

Separately, another ad hoc group of shareholders has already emerged in the case, organized by Jones Day.

During an animated hearing yesterday, bankruptcy judge Michael Wiles refrained on ruling on proposed bidding procedures and protections for stalking horse bidder KPS Capital Partners, noting that he was not convinced that Garrett truly believed that the KPS bid was the best option it had in hand at the moment.

KPS has offered US$2.6 billion to set a floor for an auction of Garrett’s assets in exchange for US$84 million in break-up fees and expense reimbursement. 

On the other side, a consortium led by Oaktree Capital Management, Centerbridge Partners and Garrett’s former parent company, Honeywell International, has also proposed a standalone Chapter 11 restructuring plan that would replace the proposed KPS sale.

Under the dueling proposal, the trio wants to provide US$250 million in DIP financing and have the reorganized Garrett sell preferred equity worth up to US$1.15 billion, according to SEC filings. Other provisions of the alternate restructuring plan include full repayment in cash of Garrett’s senior secured credit facility. General unsecured creditors would receive full repayment under the alternate restructuring plan, while common stockholders would have their equity interests reinstated.

The alternate proposal also incorporates a potential settlement of the disputes between Garrett and Honeywell, providing for a total of US$1.175 billion in cash and preferred stock to flow to Honeywell through the end of 2034.

Garrett Motion shareholder Sessa Capital also filed a notice of intention to acquire more shares of common stock of the automotive supplier. Sessa is a member of the ad hoc group of objecting shareholders represented by Jones Day and Rothschild, and already owns 6,912,204 (9%) of the company’s common stock.

Garrett, which was spun off from Honeywell in October 2018, entered Chapter 11 protection on 20 September with a US$250 million DIP from pre-petition lenders and a US$2.1 billion stalking horse agreement with KPS. Coming into the bankruptcy, Garrett had its eyes on consummating the KPS sale through a reorganization plan.

Rohrer Industries taps Harris Williams for sale, sources say

Rohrer Industries, a Wadsworth, Ohio-based supplier of retail consumer packaging, is working with Harris Williams on a sale, said two sources familiar with the matter. 

Initial bids for the ShoreView Industries-backed company are due next week, these sources said. The sale process had initially begun before COVID-19, but it was pulled because of the pandemic and is now restarting, one of the sources said.

Both sources said the company is being marketed on US$30 million of EBITDA with heavy adjustments related to integrating past acquisitions.

The private equity firm acquired Rohrer in December 2009 for undisclosed terms. Mesirow Financial advised on the sale. 

Rohrer has made a number of buys, including Buckell Plastic and Hogue Printing Solutions in 2012; CardPak in 2016 and Transparent Container in 2018. Terms were not disclosed. 

Security business ACRE taps Houlihan to explore sale, sources say 

ACRE, the LLR Partners-backed electronic security controls business, is coming to market with Houlihan Lokey advising, according to two sources familiar with the situation. The company is set to collect first round bids this week, one of the sources said. 

The Las Vegas-based business is being marketed on around US$30 million in pro forma 2020 EBITDA, both sources said. It posts mid-teens to 20% EBITDA margins and is seeing interest from both strategics and sponsors, including European sponsors, as nearly half of the company’s business is in Europe, one source said. 

The company’s revenues have been stable during the COVID-19 pandemic, the first source said, thanks in part to a large and reliable customer base among K-12 schools, universities and hospitals, he continued. Furthermore, increased demand for no-touch and keyless entry systems has been a tailwind for the company this year, the source said. A substantial majority of the business is based on retrofit and repair services. As such, recurring revenue from those operations signals that ACRE should be able to carry 5.5x-6x leverage in a buyout, this source added. 

The company has about 400 employees across offices in 25 countries, according to its website. ACRE provides security technology and services, like door controls. The business oversees a family of companies including ComNet, Open Options, RS2 Technologies and Vanderbilt. 

ACRE was acquired by LLR and Egis Capital in 2012. Prudential Capital Group is also a minority stakeholder in the business. ACRE made several acquisitions of similar businesses since then. Company management had expressed an interest in continuing a buy-and-build strategy in previous interviews. ACRE’s CEO Joe Grillo told Mergermarket last year that ACRE could be ripe for a sale in 2020. 

ACRE acquired Ingersoll-Rand’s software and controllers unit and renamed it Vanderbilt Industries in 2012. Vanderbilt’s products include video management security solutions. Its other purchases included Siemens Building Technologies’ security products business in 2015, Dublin-based Access Control Technology and Connecticut-based ComNet in 2016, Texas-based Open Options in 2018 and Indiana-based RS2 last year. Terms for these deals were undisclosed. 

Transform Materials interviews advisors to consider options, including a SPAC

Transform Materials, a Riviera Beach, Florida-based methane technology company, is beginning to talk to advisors about running a dual-track process, said CEO David Soane.

Transform is in talks with potential customers and expects to need capital to support its growth, Soane said. The capital required for the next stage of growth would be on the order of “hundreds of millions” and could come from an acquirer with a large balance sheet, or from the public markets, he said.

A SPAC in particular could be a good vehicle to take the company public, as there is substantial investor interest and several vehicles in the market now, he said.

As an example, a new SPAC called Climate Real Impact Solutions announced a US$200 million IPO and will target technologies including those that remove greenhouse gases such as CO2, as reported.

Transform would like to run a dual-track process to identify which route is more attractive, and is interviewing advisors now. It would hope to attract a first-tier investment bank such as Goldman Sachs, which has done work in the alternative energy space, but is also talking to middle market banks, he said. It is willing to field approaches from advisors with specific expertise in alternative energy or SPACs, but does not want a flood of inquiries, he added.

It has begun approaching potential acquirers as well and has sent its pitch deck out to several C-level executives, he said.

The company, which has raised in the tens of millions in capital from investors Ara Partners and Intervale Capital, is expecting to announce its first licensing deal in the near term. The deal is with a multibillion-dollar company that will use its methane conversion technology to build a plant, and it is expected to generate royalty revenue for the company in the millions, he said without providing further detail.

Transform has developed a process that uses microwave energy in a plasma reactor to convert methane into acetylene and hydrogen without oxidation, and can be used to turn flare gas, coalbed methane, biogas and other sources of methane into useful products. Materials such as acetylene black, polymers, and plastics can be produced as well, he said.

The next stage of the company’s growth will require leadership with expertise in larger company development, engineering and scaling up, and it has engaged a large recruitment firm to search for a new CEO, Soane said.

He added that he loves “breakthrough innovations” and taking companies through early stage development. A serial entrepreneur, Soane has developed several technology companies, most recently Soane Energy, a self-suspending proppant company that was sold to Fairmount Santrol in 2013 for an undisclosed amount. Fairmount and Unimin merged in 2018 to form Covia, a publicly traded company that filed for Chapter 11 bankruptcy in June this year due to the oil and gas downturn.

Soane’s companies have developed technologies in the building materials, medical devices and textiles sectors, among others.

Transform was founded in 2014. It took an early investment from Intervale Capital, then a later investment from Ara Partners, a “decarbonization” private equity firm founded by an Intervale partner. Soane and the PE firms have equal ownership and employees also own stock, he said.

IDEX could tilt M&A push to global health and science targets, sources say

IDEX is working on a global acquisition hunt that could emphasize health and science instrumentation companies, said a source familiar with the situation and two sector advisers.

The Lake Forest, Illinois-based group is interested in targets with an enterprise value between US$50 million and US$150 million, the source said, adding that IDEX could be flexible on the exact size.

EC M&A has advised IDEX on several acquisitions and a recent divestiture and is working on this effort as well, the source said.

On 28 October, the company announced that it will appoint its COO Eric Ashleman as CEO on 15 December. Current CEO Andrew Silvernail is joining Madison Industries, a holding company specializing in industrial, energy and medical companies.

On its Q3 earnings call earlier today, Ashleman said the company could eventually pursue inorganic opportunities, including JVs and acquisitions, around COVID-19-related business products and services.

IDEX's other businesses are fluid and metering technologies and firefighting products. While it could also look at fluid and metering targets, it may be more interested in health and science targets, as that is a more exciting field, the source and sector advisers said.

Analytical instrumentation groups serving the life sciences, medical and dental diagnostics areas would be of interest, said the source. One of the advisors indicated IDEX could be attracted to analytical equipment companies concerned with health and safety around the food industry, given the significant demand in that sector amid the COVID-19 pandemic. 

During its Q2 2020 earnings call in July, IDEX said the company was in due diligence talks with two targets—one based in the US and one in Europe. IDEX's last acquisition was of Flow Management Devices, a provider of flow measurement systems to the oil and gas industry, in January for US$125 million. 

IDEX did not return requests for comment, while EC declined to comment. 

In 2015, IDEX retained EC on the sale of its Ismatec pumps line to Cole-Parmer Instrument for US$28 million. The company also used EC in its purchase of Fitzpatrick, a manufacturer of process technologies for the pharma, food and personal care markets, in 2010, and iPEK Spezial-TV, a provider of infrastructure analysis systems for waste-water collection, a year earlier, according to EC's website.

IDEX has a market cap of US$13.3 billion and cash of roughly US$878 million as of 30 September.