Capital Southwest’s Chief Investment Officer, Bowen S. Diehl, who is expected to become Chief Executive Officer of CSWC after the transaction is complete, stated: “Upon completion of the separation, CSWC is expected to have a significant capital base, which we intend to leverage to build an investment portfolio with attractive risk-adjusted returns to support a competitive market dividend. We are confident that over time this strategy will enable CSWC to trade at or above net asset value.”
The Industrials company will consist of three platforms, which had combined 2014 revenue of $220 million and EBITDA of $47 million.
- The RectorSeal Corporation (“RectorSeal”), which manufactures specialty chemical products and control devices for plumbing, HVAC, electrical and industrial applications;
- The Whitmore Manufacturing Company (“Whitmore”), which manufactures high performance, specialty lubricants for heavy equipment used in surface mining, railroads and other industries, lubrication equipment specifically for rail applications and lubrication-centric reliability solutions for a wide variety of industries. Whitmore also produces water-based coatings for the automotive and primary metals industries; and
- Jet-Lube, Inc. (“Jet-Lube”), which manufactures specialty lubricants and other products used in oil field and industrial applications.
RectorSeal has continued to acquire complementary assets with its recent acquisition of SureSeal.
With the acquisition of SureSeal, RectorSeal continues to build upon its track record for identifying and executing strategic acquisitions that profitably expand its product offering,” said Joseph B. Armes, Chairman and Chief Executive Officer of Capital Southwest.
The acquisition of SureSeal represents the 27th acquisition by RectorSeal since 1991.
“SureSeal is established as the premier brand in this category, therefore it’s a natural fit that provides RectorSeal with an outstanding growth opportunity.” said David Smith, President of RectorSeal.
RectorSeal continues to seek acquisitions and partnership opportunities with manufacturers serving the plumbing, HVAC/R, electrical and fire protection markets.
Capital Southwest has, meanwhile, been filling out its executive team.
Douglas M. Kelley has joined the Company as Senior Vice President and Managing Director, and as a senior member of the Capital Southwest investment team, reporting to Bowen Diehl, Chief Investment Officer.
“We are well on our way to launching our previously announced credit-focused investment strategy of lending to strong middle-market companies, and the inclusion of Doug onto the Capital Southwest team is another pivotal step,” said Mr. Diehl. “Doug’s broad network of relationships across the private equity industry will make a significant impact on our origination and deal execution capability. His long and impressive track record of originating, structuring, closing and managing a portfolio of debt and equity investments will give us the horsepower necessary to build our business and create shareholder value. Having previously worked with Doug for almost ten years and seeing firsthand how he operates, I am elated that he will be joining our team at Capital Southwest.”
“I am excited to join Capital Southwest and be part of creating a new leader in our industry,” said Mr. Kelley. “Capital Southwest has a very strong team and I believe a real opportunity to create lasting value for its shareholders. I look forward to hitting the ground running and making a positive impact on our business.”
The parent will continue as a pure BDC
CSWC will maintain operations as an internally-managed business development company (“BDC”) and pursue a credit-focused investing strategy akin to similarly structured organizations. The business will continue to provide capital to middle-market companies in the Southwest and across the country that have strong management teams and have demonstrated sound financial performance. It will focus on generating current income that will allow shareholders to receive a market based dividend in a tax efficient manner. CSWC intends to primarily invest in debt securities, including senior “unitranche” debt, second lien and subordinated debt, and may also invest in preferred stock and common stock alongside its debt investments or through warrants.
The company’s strategy of separating its mature operating assets from its investment platform seems sound and likely to enhance value for shareholders. We are particularly intrigued by the industrial arm that Mr. Armes will be leaving to run.
Disclosure: The author holds no position in any stock mentioned.