On the block

Labor Day is coming. Summer finally feels to be petering out, and many people are out of the office — and just as well, because it sounds like Fall is going to be busy.

Amid the recent uptick in M&A processes, Audax has put FDH Aero on the block. After six years of Audax ownership, the company is marketing itself on EBTIDA of around $100m, as we reported yesterday. 

If valuation and leverage expectations are hit, a decent-sized debt package should result. Aerospace is a hot sector, and you can’t make planes without nuts, bolts, and all the other fasteners and bits and bobs that FDH traffics in. 

Over the time of its ownership, Audax followed a traditional private equity playbook, bolting on assets (no pun intended) and watching EBITDA grow. As recently as April, the company acquired BJG Electronics Group, after acquiring Electro Enterprises and Calco Aerospace. 

The deal has private credit folks salivating. Aerospace is already one of the market’s favored sectors (one source asked, rhetorically, “When is aerospace not attractive?”), but as shown by Barnes Group’s recent debt syndication — to fund its purchase of MB Aerospace — credits in the sector are bucking the trend of a broader decline in industrials.

The aerospace parts industry is fragmented, with plenty of smaller companies that can be quickly integrated by larger players. Right now, because of strong commercial demand, manufacturers can’t make planes quick enough. That’s a great tailwind, and the other big end market — the US military — provides stability.

Of course there are potential pitfalls. Parts supplier Incora filed for bankruptcy in June after buckling under a debt load in excess of $3bn, and private jet company Wheels Up recently handed ownership to Knighthead and Certares, as Bloomberg reported last week. 

But broadly speaking, the tailwinds are strong (sorry).

Life insurance

If six years is a long-ish hold time in private equity, eight is a lifetime (fifteen is an aeon — and yet, that’s how long The Jordan Company owned Worldwide Clinical before its recent deal).

Anyway, speaking of eight years: Golub Capital recently upsized its loan to insurance brokerage Risk Strategies to $4.45bn. That makes the deal one of the largest private credit financings out there. 

Kelso & Co has owned since 2015, and Golub has been along for the ride since that time. The lender took over as lead debt financier in 2019, with a $1.6bn unitranche that had participation from 10 other lenders.

Like FDH in the aerospace sector, Risk Strategies has pursued a buy-and-build strategy. It has acquired as many as 16 companies this year alone. That makes private credit, and its flexibility through features like delayed draw tranches, an attractive financing option.

“The unitranche market is open, and private equity players value the scalability offered by unitranche facilities for their buy-and-build strategies,” said Chip Cushman, a managing director at Golub, in a press release.

Indeed, as we documented in our May roundup of BDC earnings, add-ons have become a bigger portion of new originations for private credit firms.

But roll-up strategies are not without their challenges. Integration can be difficult, and synergies don’t always go to plan. The healthcare sector provides an example, as we reported last week: it’s hard to scale when doctors are retiring and restrictive immigration policies are shrinking the hiring pool.

That’s the spirit

Have you spent decades in a particular industry, and know the jargon and the participants inside out? Become a lender to it! 

That is how Brian Rosen, founder of Algoma Capital, is putting his sector expertise to work: a $100m private fund targeting the whiskey business.

He’s spent more than four decades in the beverage industry. Once a CEO of his own $100m drinks retailer, he’s also worked closely with start-up drinks companies offering advisory services, while once serving as lead consultant of trade marketing at behemoth Anheuser-Busch. 

According to Rosen’s LinkedIn profile, he is today president of BevStrat, a sales, placement and strategy services provider to beverage companies. 

Algoma’s loans can go up to $10m in size and are secured against hard (but also…possibly liquid?!) assets. It’s the familiar private credit pitch: faster and more flexible capital compared with the banks. And it’s further evidence of the specialist seams that direct lenders can mine — another addition to Briarcliffe’s 26 sub-categories of private credit.

The odds of success for this type of fund are unclear, although Rosen does seem set up for success. As he said in an official release: “Banks and other capital providers move slow and bury the supplier in paperwork and diligence.”

Less paperwork? Many will drink to that.