On the heels of its buyout of a paper mill in upstate New York, Atlas Industries Holdings L.L.C. plans to print $190 million in cash via an initial public offering of stock and accompanying private placements.
The Greenwich firm”™s IPO follows plans for a secondary offering by Westport-based Compass Group Diversified Holdings L.L.C., which is raising as much as $170 million following its own IPO in May 2006.
Both companies are using the offerings in part to pay down debt from previous acquisitions, freeing up additional credit for deals going forward.
Compass founder Joseph Massoud differentiates his company from recent “blank-check” offerings, in which the only asset fund managers hold is their track record. By contrast, Compass and Atlas already hold controlling interests in companies.
“It”™s more of a ”˜come for the company, stay for the manager”™ approach,” Massoud said, as opposed to blank-check funds that ask investors to trust in managers who have yet to acquire assets.
The IPO offering offers the first behind-the-scenes glimpse of financials at Atlas; founder Andrew Bursky at deadline had not returned calls for comment. Selling paper and packaging materials, the company”™s operating units combined for a $4.9 million profit in 2006 on revenue of $287 million.
Both Bursky and Massoud are Harvard Business School graduates who followed not dissimilar paths to the helm of hybrid public-private buyout funds.
Bursky was schooled at Interlaken Capital Inc., a Greenwich buyout fund run by William Berkley, who made $62 million last year as CEO of W.R. Berkley Corp., a Greenwich insurance company.
Massoud learned the ropes with Kattegat Trust, a family fund created by the late owner of Teekay Shipping Corp., among the largest marine transport companies in the world. Compass was created with Kattegat assets.
Both companies avoid high-stakes auctions for companies by using industry contacts and detective work to identify those that are not actively courting bidders, then quietly bringing a deal to fruition.
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While Glens Falls, N.Y.-based papermaker Finch Pruyn & Co., Atlas”™ most recent deal, had publicly put itself up for sale, Atlas staff has pulled off 10 such deals since 2002.
Both companies attempt to find deals where a company”™s selling price is not more than seven times the earnings before interest, taxes, depreciation and amortization. Seven is the lucky number for a reason ”“ last year, businesses acquired for less than $100 million received a median of 7.9 times EBITDA, according to Mergerstat; those sold between $100 million and $300 million got a median multiple of 9.3 times EBITDA.
Funds like Atlas and Compass make money in two ways ”“ via the spread between the acquisition and disposition prices of a company, and by carving out management fees.
Compass pays its management group 2 percent of its adjusted net assets annually, in four quarterly installments.
Massoud said hybrid funds like Atlas and Compass have an advantage over private-equity firms, which are under pressure to liquidate holdings within three to five years to satisfy limited partners they will hit up again for follow-on funds.
Compass has “flipped” companies in a matter of a few years, most recently Crosman Acquisition Corp., an air gun maker in East Bloomfield, N.Y., for which Compass recognized a $36 million gain. Massoud said his preferred model is to increase the size of a company over time.
For a clue on how its stock might fare, Atlas need only take a reading from Compass, whose shares (Nasdaq: CODI) traded last week at $16.25. That was off their high of better than $18 in early February, but above their $15 offering price a year ago.
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