CAI Capital Buys Douglas Machines in All Equity Deal
Dow Jones, LBO Wire, Monday, May 8, 2006
By Paul Ziobro
5/8/2006 - CAI Capital Management Co. has acquired a majority stake in Douglas Machine & Tool Co., a Cincinnati-based maker of machined parts for industrial and aerospace gas turbine engines.
The amount of the deal wasn't disclosed, but the firm's investment was entirely in the form of equity.
CAI Capital tapped into its third private equity fund, which closed with $375 million in 2003, for the Douglas Machine investment, which closed in January. CAI typically puts between $20 million and $75 million in equity to work per investment, said Peter M. Gottsegen, a co-founder and managing director at CAI.
Douglas Machines derives about 85% of its business from a process that drills cooling holes in industrial gas turbine nozzles, blades and vanes. The remaining 15% of the business focuses on making aircraft engine components, according to Downer & Co., a Boston-based bank that advised Douglas in the deal. The parts that Douglas makes are used by original equipment manufacturers and for replacement parts.
The company has manufacturing facilities in Cincinnati and Budapest. Financial figures were not disclosed, although CAI likes companies with at least $50 million in annual revenues.
Gottsegen said that the Eastern European plant, as well as a rebound in the industrial gas turbine market, provides attractive growth opportunities for the investment.
CAI Capital heard about Douglas Machines through its experience with TurboCombustor Technology Inc., or TCT, an existing portfolio company that makes other parts for gas turbine engines used in commercial and military applications.
TCT, of Stuart, Fla., had considered outsourcing some work to Douglas Machines and found out the company's shareholders were considering a sale, Gottsegen said. Although initially outbid by a strategic buyer, CAI got back in the game when the other bidder gradually began to decrease its price for the company.
CAI Capital is investing in Douglas Machine along with AeroEquity Inc., a private investment firm based in Savannah, Ga., that invests in aviation and aerospace related companies. CAI has also partnered with AeroEquity on investments in TCT and AeroSat Corp., a company that makes antennas for airplanes that allow passenger to watch satellite television or access the Internet. CAI bought a stake in AeroSat in April.
Founded in 1989, CAI invests in North American companies, with a focus on Canadian companies. The firm, with offices in New York, Montreal, Toronto and Vancouver, locates deals through a network of former chief executives and rarely participates in auctions, primarily because of its tendency to not use a lot of debt. The capital structure for CAI deals usually stays below three times debt-to-equity, Gottsegen said.
The firm's third fund it about 50% invested thus far and has more than 10 active portfolio investments.
Reach CAI Capital Management at 416-306-9810.