American Capital Provides Details of $41 Million Net Realized Gains From
Portfolio Companies in Fourth Quarter 2007
BETHESDA, Md., Feb. 14 /PRNewswire-FirstCall/ -- American Capital
Strategies Ltd. (Nasdaq: ACAS) announced today information regarding $41
million of total net realized gains from the disposition of portfolio
investments in the fourth quarter of 2007. The portfolio net realized gains
exclude realized gains or losses from interest rate derivatives, taxes on
realized gains and foreign currency transactions. During the fourth quarter
of 2007, American Capital received $1.5 billion of proceeds from the
disposition of portfolio investments.
"American Capital is continuing to experience significant net realized
gains from exits of its portfolio investments," says John Erickson, American
Capital Chief Financial Officer. "Despite the credit crunch, American Capital
received approximately $2.9 billion of realizations in the second half of
2007. For the most part, these funds will be used to make future investments
in one of the best investment climates in years. The $41 million of net
realized gains in the fourth quarter includes the realization of several
significant losses. American Capital continues to realize losses by exiting
investments that have performed poorly once it becomes evident that we will
not be able to improve a portfolio company's performance. As a result,
overall, our current portfolio of investments is performing very well."
"Based on our proprietary database of middle market (less than $1 billion
of enterprise value) transactions, buyout activity in the fourth quarter of
2007 continued to be strong at about 260 transactions. This was greater than
the approximately 225 transactions we identified in the fourth quarter of
2006, although it was slightly below the approximately 280 transactions we
identified for each of the second and third quarters," said Ira Wagner,
American Capital Chief Operating Officer. "In addition, average enterprise
value multiples appear to have declined only slightly in the fourth quarter
from earlier in 2007, and continue to be in excess of nine times EBITDA.
Strategic buyers continue to have the capital to fund transactions and private
equity firms, many with significant available capital after three years of
record breaking fund raising, are having no difficulty funding their middle
market transactions. This is in contrast to the difficulty firms have
experienced in raising financing for transactions greater than $1 billion in
enterprise value. We continue to look forward to significant liquidity in our
portfolio in 2008, which we will use to reinvest in great companies."
Since its August 1997 IPO through the fourth quarter of 2007, American
Capital has earned a 16% compounded annual return, including interest,
dividends, fees and net gains, on 225 realizations of senior debt,
subordinated debt and equity investments, totaling $10 billion of committed
capital. These realizations represent 44% of all amounts invested by American
Capital since its August 1997 IPO. Proceeds from these realizations exceeded
the total associated prior quarter valuation of the investments by 1%.
American Capital earned a 30% compounded annual return on the exit of its
equity investments, including dividends, fees and net gains.
Ranpak Inc.
American Capital previously announced that it recognized a gain of
$45 million in the fourth quarter from the sale of its portfolio company
Ranpak Inc. to Odyssey Investment Partners LLC. American Capital's inception
to date total realized gain on its investment in Ranpak was $77 million.
American Capital earned a 31% compounded annual rate of return on its total
investment, including interest, dividends and fees earned over the life of
American Capital's investment. The proceeds received by American Capital were
less than the third quarter 2007 valuation of the investment by $11 million,
or 5%. Including the investments in Ranpak of American Capital's affiliated
funds under management, the gain totaled $104 million over the life of the
investment. For more on the Ranpak investment, go to
http://www.ACAS.com/news/newsreleases/2008/pr20080103.html.
Sale of Equity Interests to American Capital Equity II
American Capital also previously announced that it sold 17% of its equity
investments in 80 portfolio companies to American Capital Equity II, LP in the
fourth quarter for an aggregate cash purchase price of $488 million. Through
a subsidiary, American Capital LLC, a wholly-owned portfolio company of
American Capital, will provide asset management services to American Capital
Equity II for a 2% annual management fee on the cost basis of the assets and a
10%-30% carried interest in the net profits of American Capital Equity II,
subject to performance hurdles. American Capital realized a gain of $78
million in the fourth quarter. For more information on the sale to American
Capital Equity II, go to
http://www.ACAS.com/news/newsreleases/2007/pr20071005.html.
The Redwood Companies
In the fourth quarter of 2007, American Capital realized a gain of $5
million from the sale of its portfolio company, RTL Acquisition Corp., the
parent of The Redwood Companies, to Inverness Medical Innovations Inc.
(Amex: IMA). The Redwood Companies is a leading provider of drugs-of-abuse
lab testing services and on-site test kits to the correctional, rehabilitation
and point-of-care markets. American Capital earned a 20% compounded annual
rate of return on its total investment, including interest, dividends and fees
earned over the life of American Capital's investment. The proceeds received
by American Capital were greater than the third quarter 2007 valuation of the
investment by $0.6 million, or 2%.
In February 2006, American Capital invested $79.5 million in the One Stop
Buyout(TM) of Redwood. American Capital's investment took the form of a
revolving credit facility, senior debt, senior subordinated debt and preferred
and common equity.
"We're pleased to have worked with the management team at Redwood and wish
them continued success under the new leadership of Inverness Medical
Innovations," said Frank Do, Managing Director, American Capital Buyout Group.
For more information about the Redwood investment, go to
http://www.ACAS.com/our_portfolio/companies/redwood.html.
Varel Holdings Inc.
In the fourth quarter of 2007, American Capital's portfolio company Varel
Holdings Inc. was sold to Arcapita Inc. American Capital realized full
repayment of its $66 million debt investment and sold its common stock warrant
investment for $3 million realizing a total gain of $4 million before any
gains on foreign currency translation. Varel is the parent to Varel
International Ltd., a Carrolton, TX based designer, manufacturer and worldwide
distributor of roller-cone and polycrystalline diamond compact drill bits for
the oil and gas and mining industries. American Capital earned a 23%
compounded annual rate of return on its total investment, including interest
and fees earned over the life of American Capital's investment. The proceeds
received by American Capital were greater than the third quarter 2007
valuation of the investment by $1 million, or 2%.
In October 2006, American Capital invested $50 million in the
recapitalization of Varel. American Capital's investment took the form of a
senior unirate loan and junior subordinated debt with warrants. In March
2007, American Capital made a subsequent $16 million investment in Varel to
support its acquisition of Pendemak Industries Ltd., Varel's exclusive
distributor in Canada. American Capital's add-on investment consisted of a
senior unirate loan. KRG Capital Partners was the majority owner of Varel.
"Varel was another great investment for the American Capital Energy
Group," said Kevin Kuykendall, Managing Director, American Capital Energy
Group. "Since our initial investment in 2006, the company quickly exceeded
expectations and afforded us the opportunity to provide financing again eight
months later during its add-on acquisition of Pendemak. We're happy to have
had the opportunity to support the company in its growth as well as work with
our long-time private equity partner, KRG Capital Partners."
For more information about the Varel investments, go to
http://www.ACAS.com/our_portfolio/companies/varel.html.
BarrierSafe Solutions International Inc.
In the fourth quarter of 2007, American Capital realized full repayment of
its $69 million debt investment in BarrierSafe Solutions International Inc.,
including payment-in-kind interest. BarrierSafe is a leading developer and
marketer of disposable gloves and related products. American Capital earned a
19% compounded annual rate of return on its total investment, including
interest and fees earned over the life of American Capital's investment.
In September 2004, American Capital invested $65 million to support the
merger of Microflex Corporation and FoodHandler Inc. to create BarrierSafe.
The merger was led by BarrierSafe's majority owners, Riverside Partners and
StoneCreek Capital. American Capital's investment took the form of a senior
term loan and senior subordinated debt.
"Our investment in BarrierSafe allowed us the opportunity to work with two
private equity sponsors, Riverside Partners and StoneCreek Capital, who came
to us to support the attractive merger of two leaders in the disposable glove
industry. We're pleased to have been a part of creating a stronger niche
player in the industry," said Frank Do, Managing Director, American Capital
Buyout Group.
For more information about the BarrierSafe investment, go to
http://www.ACAS.com/our_portfolio/companies/barriersafe.html.
Breeze Industrial Products Corporation
In the fourth quarter of 2007, American Capital realized full repayment of
its $53 million debt investment in Breeze Industrial Products Corporation, a
leading global supplier of steel clamps. American Capital earned a 16%
compounded annual rate of return on its total investment, including interest
and fees earned over the life of American Capital's investment.
In August 2004, American Capital invested $12 million in senior and junior
subordinated debt to support Wind Point Partners' acquisition of Breeze. In
August 2006, American Capital invested an additional $52 million in senior
second lien loan, senior subordinated debt and holding company subordinated
debt to support Breeze's dividend recapitalization including the repayment of
American Capital's initial $12 million of debt investments.
"Our previous investments in Breeze Industrial Products illustrate
American Capital's support of its portfolio companies and private equity
sponsors through multiple investments," said Bowen Diehl, Managing Director,
American Capital Sponsor Finance Group. "In this particular case, we had the
opportunity to work with Wind Point Partners, providing financing in two
separate instances to support another successful portfolio company. Since our
investment in 2004, Breeze has grown nicely through the implementation of
strategic growth and business improvement initiatives and we're pleased to
have been a part of this growth."
For more information about the Breeze investments, go to
http://www.ACAS.com/our_portfolio/companies/breeze_industrial.html.
Trigeant Ltd.
In the fourth quarter of 2007, American Capital realized a full exit of
its $22 million debt investment in Trigeant Ltd., a leading refiner of heavy
and sour crude stock into asphalt. American Capital earned a 29% compounded
annual rate of return on its total investment, including interest and fees
earned over the life of American Capital's investment.
In December 2006, American Capital invested $22 million in senior secured
term loans in a recapitalization of Trigeant.
"Our investment in Trigeant was indicative of the array of situations in
which the American Capital Special Situations Group provides critical and
flexible capital under tight turnaround times," said David McReynolds,
Principal, American Capital Special Situations Group. "We're pleased with the
results of our $22 million debt investment in Trigeant, which we were able to
exit in only one year."
For more information about the Trigeant investment, go to
http://www.ACAS.com/our_portfolio/companies/trigeant.html.
Portfolio Company
In the fourth quarter of 2007, American Capital sold its senior and junior
subordinated debt investments in a portfolio company with a principal balance
of $20 million for $10 million of cash and a minority equity interest in the
portfolio company. As a result of the transaction, American Capital realized
a $9 million loss in the fourth quarter of 2007. American Capital earned a
negative 10% compounded annual rate of return on its total investment,
including interest and fees earned over the life of American Capital's
investment. The proceeds received by American Capital were greater than the
third quarter 2007 valuation of the investment by $6 million, or 167%.
New Starcom Holdings Inc.
In the fourth quarter of 2007, American Capital realized a loss of $43
million on its investment in New Starcom Holdings Inc., a provider of design,
integration and installation services for commercial electrical,
telecommunications and computer networking systems. During the fourth
quarter, New Starcom sold one of its operating subsidiaries and ceased all of
its other operations. American Capital earned a negative 24% compounded
annual rate of return on its total investment, including interest and fees
earned over the life of American Capital's investment. The proceeds received
by American Capital were less than the third quarter 2007 valuation of the
investment by $1 million, or 100%.
American Capital invested in an entity that subsequently became a
subsidiary of New Starcom in December 1998 with a $16.5 million investment in
subordinated debt and equity. American Capital made a subsequent $6.6 million
subordinated debt and equity investment in this subsidiary in June 1999 to
support its acquisitions of two leading private companies in the electrical
services industry. In June 2003, American Capital purchased the existing
senior debt of New Starcom at a discount to face for a total purchase price of
$11.5 million. In 2007, American Capital invested an additional $11 million
in New Starcom for working capital purposes.
For more information about the New Starcom investments, go to
http://www.ACAS.com/our_portfolio/companies/starcom.html.
Stravina Holdings Inc.
In the fourth quarter of 2007, American Capital realized a loss of $44
million on its investment in Stravina Holdings Inc., a designer and supplier
of impulse-purchase novelty and souvenir items. During the fourth quarter,
Stravina initiated an assignment of its assets for the benefit of its
creditors, which is an out of court liquidation process. American Capital
received $2 million of sale proceeds in the fourth quarter and expects to
receive a minimal amount of proceeds from the liquidation of the remaining
assets of Stravina. American Capital wrote off all its debt and equity
investments in the fourth quarter with the exception of a senior debt
investment for which it expects to receive payments from the additional
liquidation proceeds. The debt and equity investments written off in the
fourth quarter had a fair value of zero at the end of the third quarter of
2007. American Capital earned a negative 42% compounded annual rate of return
on its total investment, including interest and fees earned over the life of
American Capital's investment.
American Capital first invested in Stravina in May 2002, supporting Blue
Capital Management LLC's acquisition with a $19.5 million senior subordinated
debt and common equity investment. In August 2003, American Capital made an
additional $7.5 million senior subordinated debt investment to support the
Company's acquisition of Hanover Accessories, a designer and marketer of
children's jewelry and hair accessories, pet accessories and novelty products.
In April 2005, American Capital made an additional $40 million investment in
Stravina, purchasing the senior debt of Stravina, committing to a senior term
loan and providing a revolving credit facility.
For more information about the Stravina investments, go to
http://www.ACAS.com/our_portfolio/companies/stravina.html.
For a chart showing American Capital's exited portfolio companies, go to
http://www.ACAS.com/our_portfolio/exited.html
ABOUT AMERICAN CAPITAL
American Capital is the only alternative asset management company that is
a member of the S&P 500. With $19 billion in capital resources under
management, American Capital is the largest U.S. publicly traded private
equity fund and one of the largest publicly traded alternative asset managers.
American Capital, both directly and through its global asset management
business, is an investor in management and employee buyouts, private equity
buyouts, and early stage and mature private and public companies. American
Capital provides senior debt, mezzanine debt and equity to fund growth,
acquisitions, recapitalizations and securitizations. American Capital and its
affiliates invest from $5 million to $800 million per company in North America
and euro 5 million to euro 500 million per company in Europe.
As of December 31, 2007, American Capital shareholders have enjoyed a
total return of 453% since the Company's IPO -- an annualized return of 18%,
assuming reinvestment of dividends. American Capital has paid a total of $2.1
billion in dividends and paid or declared $27.17 dividends per share since
going public in August 1997 at $15 per share.
Companies interested in learning more about American Capital's flexible
financing should contact Mark Opel, Senior Vice President, Business
Development, at (800) 248-9340, or visit http://www.AmericanCapital.com or
http://www.EuropeanCapital.com.
Performance data quoted above represents past performance of American
Capital. Past performance does not guarantee future results and the
investment return and principal value of an investment in American Capital
will likely fluctuate. Consequently, an investor's shares, when sold, may be
worth more or less than their original cost. Additionally, American Capital's
current performance may be lower or higher than the performance data quoted
above.
This press release contains forward-looking statements. The statements
regarding expected results of American Capital are subject to various factors
and uncertainties, including the uncertainties associated with the timing of
transaction closings, changes in interest rates, availability of transactions,
changes in regional, national or international economic conditions, or changes
in the conditions of the industries in which American Capital has made
investments.
SOURCE American Capital Strategies Ltd.
Tom McHale, Senior Vice President, Finance, +1-301-951-6122; or Brian Maney,
Director, Corporate Communications, +1-301-951-6122, both of American Capital
Strategies Ltd.
