Wind Point Partners is predicting that consolidation in the homebuilding sector will drive growth for its latest acquisition, United Subcontractors Inc. (USI). The private equity firm bought USI in a leveraged buyout for $287 million last month, tapping The Royal Bank of Scotland and Citigroup for the senior debt financing. "This is an exciting opportunity because there are many strategic opportunities for growth. Growth is being dictated by customers growing larger and wanting to deal with fewer suppliers and USI will continue to increase the products and services available to customers," explained Nathan Brown, a principal at Wind Point and a board member of USI.
Paul Aran, a v.p. and senior analyst with Moody's Investors Service, said, USI prides itself on meeting promises made to builders for on-time delivery and given the rate of home sales, companies that can deliver on time are highly appreciated (LMW, 10/4).
The company's EBITDA margin has been around 19.5% in recent years and is expected to remain at or near this level as long as home sales remain strong, Aran added. Potential problems in the housing market are not concerning Wind Point. "We are forecasting continued strength in the housing market because of strong fundamentals such as demographics," Aran said. However, USI's significant growth opportunity should enable the company to grow or maintain revenue in the face of potential market softness. "We will look for acquisitions that either take us into new markets or expand our product offering," Brown noted.
Commenting on the selection of the two banks, Brown said, "We looked at a number of banks, and a number of banks competed, but RBS and Citigroup provided the most flexible financing structure." The bank debt consists of a $155 million "B" loan, a $26 million second-lien "C" loan and an unfunded $30 million revolver. "They tailored the financing to the company's growth needs. The structure has a large 'B' loan with little amortization. We used the second-lien as a way to stretch the senior debt," he added. The financing was completed with a $33.6 million mezzanine tranche provided by Northwestern Mutual Life and Citigroup Mezzanine Partners and $72 million of equity.
Wind Point is tapping Kevin Gilligan, formerly president and ceo of Honeywell's automation and control solutions group, to be the ceo of USI. "We met Kevin in January through our Executive Advisors Partners--a 35 person-strong cadre of senior executives who assist Wind Point with deal sourcing and due diligence and often introduce the firm to potential ceos and portfolio companies. "Kevin was interested in finding a business to run and was very excited about the growth opportunities he saw at USI," explained Brown. "Meanwhile, we were introduced to USI's retiring CEO Dave Nipper and largest shareholder by his financial advisor and then we were able to negotiate the transaction."