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The Thermo Companies have
made two investments in the industrial arena. The first supported a management
team in acquiring a platform company. This platform company, United Engines,
has subsequently made additional acquisitions and investments to broaden its
products and services and to help fuel its growth. The latter was made into a
mezzanine debt fund and was done for strategic reasons, including the right to
make additional direct investments in the respective portfolio companies. This
approach permits Thermo to evaluate multiple opportunities in situations where
the mezzanine fund has already conducted due diligence in both the company and
the sector. Thermo is committed to providing additional growth capital as
necessary to its companies and is actively working with the respective
management teams on strategic growth opportunities.
- United Engines LLC. During 2001, Thermo and a senior management team
made a $10 million investment to purchase two related companies, United Engines
and UE Manufacturing (collectively "United"
www.unitedengines.com),
in the diesel engine distribution and power transmission businesses. United
sells engineered equipment, parts and service to numerous markets including
transportation, drilling, power generation, and oil field services. Combined
revenues for 2003 were $70 million and United is expected to continue to show a
top line annual growth rate of greater than 30%. The three-member management
team and 20% ownership group were previously senior managers at Stewart and
Stevenson Services including its past President/CEO, Senior Vice President for
Distributor Operations and Vice President of Manufacturing. Thermo has a
20-year working history with this group spanning multiple business ventures.
United is expanding into related businesses that add value to the
existing distribution and service network through cost efficiencies and
additional equipment and service offerings. In 2002, the United management team
launched UE Compression to focus on the natural gas compression marketplace and
leverage its experience and reputation in the oil and gas industry. To do this,
United recruited the past president of a competitor, whose division was being
eliminated, who is now responsible for manufacturing new equipment as well as
providing parts and service to the compression industry for United.
In
2004 United acquired Bucks Engine Company, which assembles and sells up to
3,000 engines per year into the agricultural irrigation market. This
acquisition provides access to a unique contract between General Motors
Corporation and Bucks allowing United to buy automotive style engines at a
price not offered to more than a small handful of companies in the entire
United States. Bucks then converts these gasoline engines to operate on
propane, butane or natural gas fuels.
Effective February of 2004,
United obtained the territorial distribution and service rights to the Thermo
King (www.thermoking.com)
line of temperature control systems for Texas. Thermo King's equipment is used
in numerous mobile applications including trailers, buses, shipboard containers
and railway cars. Thermo King has been in business since 1938, is the
preeminent name in this field, and operates through a global network of dealers
in 75 countries. United, with the existing Thermo King operating management,
purchased the assets and distribution rights for Texas from a company which was
exiting the business. First year revenues are expected to be $10 million and
will be immediately accretive to earnings at United. Management believes there
are additional opportunities to acquire Thermo King distributors in other
geographic areas.
- Prudential Capital Partners, L.P. ("PCP"). PCP is a $600 million
mezzanine fund with exclusive access to Prudential Capital Group's mezzanine
deal network. The fund is focused on the middle market with a preference for
manufacturing and service companies and has a fundamental value orientation,
which stands to benefit from the disruptions in the high yield bond market.
Public high yield investors are demanding increased liquidity in their
investments. The resulting increased size of current high yield offerings
precludes smaller, high quality companies from accessing junior debt capital.
PCP has access to many of these companies through its proprietary network and
believes the investment opportunities to be attractive and abundant. Thermo
believes that its long-term relationship with Prudential, which began in 1989
with financings in Thermo's independent energy business segment, its common
investment strategy and its investment in PCP will provide it with attractive
investment opportunities. Thermo is currently evaluating direct investments in
certain PCP portfolio companies.
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