PRECISION MACHINE AND MANUFACTURING
In March 2014, we backed the existing management team of Precision Machine and Manufacturing in the acquisition of the company from its retiring owner. Precision is a Eugene, Oregon based manufacturer of material handling equipment used to move granular materials with a focus on the most demanding, complex and abrasive applications. Industries served include, forest products, pulp and paper, biomass, cement, aggregates, coal fired utilities and mining. Precision’s products often sell for as much as a 30% premium over competitive products due to their unique design, longevity and life cycle economics. Even so, given the focus on demanding applications, repair and refurbishment of worn out equipment is an important part of their revenue stream.
Four years prior to the sale to our group, the owner recruited a new president to assume full responsibility for all operational aspects of the business. The president had an option to purchase the company, but the size of the acquisition was well beyond his personal financial resources. An intermediary in Portland introduced Socius Capital to the opportunity and we became the president’s financial partner in consummating the acquisition. In addition to investing a significant amount of our own personal capital, Socius brought in an institutional investor to provide the majority of the capital on pari pasu terms with our investment. The President and another manager invested in common securities while Socius and its institutional partner committed to all of the preferred stock and subordinated debt. A senior lender provided a term loan amounting to approximately 1.5x trailing EBITDA. We and our institutional partner own a controlling interest in the business, while the management investors own a significant minority stake.
PIONEER RECYCLING SERVICES
In December 2014, we formed a new entity, Pioneer Recycling Services (“PRS”) to acquire two material recovery facilities (“MRF’s”) from SP Fiber, a large pulp and paper company based in Georgia. MRF’s receive comingled recyclable material, mostly from residential waste haulers, and separate and bale the different materials for sale to end users. SP Fiber was in the process of selling off all of their MRF’s (approximately 16 in total), as they were no longer strategic assets. The two MRF’s we acquired, one in Tacoma and one outside Portland, were the largest and final two MRF’s to be divested.
Our investment thesis was that because the previous owner, SP Fiber, had operated the facilities as cost centers with a primary emphasis on sourcing recycled paper for SP Fiber’s paper mill in Oregon, there were numerous profit improvement opportunities. Also, the fact that the incoming management team was willing to invest a significant percentage of their personal net worth along side Socius gave us comfort in their commitment and confidence in the business.
Similar to other Socius transactions, the management team invested in common securities and we and our institutional partner invested in all of the preferred and subordinated debt. Given the amount of capital invested by the management team, they were able to retain a controlling interest in Pioneer.