News
New Big Apple Shop Closes First Deal
March 31, 2008
The partners of Wincove Capital, a start-up buyout shop with backing from a single investor, have scored their first deal since leaving Hampshire Equity Partners. They acquired Connect-Air International Inc., a Seattle-based company that distributes wire and cable products.
Based in New York, Wincove Capital was introduced to the company's founders, brothers Michael and Ron Jones, about six months ago by White Oak Partners LLC, a buy-side broker based in Durham, N.C. The partners won the deal in part by showing the co-founders how they could expand into new territories with the help of John McAlister, a partner at Wincove Capital with ample experience in niche manufacturing. Terms of the deal were not released.
Connect-Air does business in the Northwest, California and Arizona, selling wire and cable products to companies that manufacture fire safety systems, security systems and other systems. Wincove Capital's expansion plan would have the company moving into the Southeast, where the commercial construction market remains strong, said Michael McGovern, partner.
This marks the first deal for Wincove Capital, which acquires companies in niche manufacturing, specialty distribution and services generating $2 million to $8 million of EBITDA. The firm enjoys financial backing from an affiliate of Harris Preston & Partners LLC, an Austin, Texas-based investment management firm that invests in small and mid-market companies.
Wincove Capital's founders began transitioning out of Hampshire Equity toward the end of last year and officially started operations Jan. 1. McGovern decided to branch out on his own after seeing an opportunity to partner with McAlister, previously CEO of R·O·M Corp. Hampshire Equity owned McAlister's company until it sold the maker of security closures, insulated bulkheads and other products for the food distribution, fire service and building security industries in February 2007. "I was extremely impressed with his ability to grow middle-market businesses and work with middle-market management teams," McGovern said of McAlister. John Lenahan, principal, also left Hampshire Equity to join Wincove Capital.
McGovern said he discussed starting his own independent firm with Hampshire Equity management before leaving the firm. He described the split as amicable, although the firms do not plan to do deals together.
How the departure of McGovern, Lenahan and McAlister will affect Hampshire Equity is unclear. It was seeking to raise $150 million for its fourth fund in the first quarter of 2007, according to data from Thomson Financial. Greg Flynn, managing partner at Hampshire Equity, agreed the split was amicable but declined to comment further on the departures. Founded in 1990, Hampshire Equity invests in manufacturing, media and telecommunications, specialty training, health care, business services and consumer products. The firm prefers to make equity investments of between $10 million and $25 million in companies with annual sales of between $25 million and $150 million and EBITDA of between $3 million and $15 million. Its team consists of Flynn and Tracey Rudd, managing partner. Hampshire's second and third funds, raised in 1997 and 2000, earned IRRs of 6.69 and -2.12, respectively, according to The University of Texas Investment Management Company. As of March 31, the funds were not yet fully realized, however, sources close to the firm said.
Wincove Capital approached Harris Preston about funding its deals in the fourth quarter of 2007 after getting two deals under letters of intent—one was Connect-Air, the other fell apart because of due diligence issues, McGovern said. McGovern knew Charles Preston, managing director at the firm, for about 10 years, because Preston was formerly the portfolio manager in the private markets group at UTIMCO, an investor in Hampshire Equity.
Wincove isn't sure yet whether it will try to expand its investor base. The firm is hoping to close its second deal in the second quarter.—B.V.
