BIW Connector Systems, LLC, is an example of an "orphan" company that found a new home through a classic leveraged buyout, with the bulk of the financing provided by American Capital Strategies (Nasdaq:ACAS). BIW, a manufacturer of specialized electrical connectors for the oil field and airline industries, had been owned since 1987 by Draka, USA, a subsidiary of the Netherlands-based Draka Holding Company. Although BIW was a successful business with $14 million in sales in 1997, it was not considered a core component of Draka's far-flung global industrial cable empire. When Draka lost interest in the specialized electrical connector business, BIW went up for auction and needed a new home.
A profitable, growing company, BIW was founded in 1956 as Electronic Accessories, Inc. In its early years, it manufactured connectors for military applications and then went into business distributing elevator cables and making TV connectors. In 1973, BIW began making wellhead connectors for the oil industry's electric submersible pumps and has since become the world's leading producer of the product. Representing 70% of its business, BIW's wellhead connectors, used on pumps that artificially lift oil and maximize yield from low-pressure wells, have become the industry standard. In the mid-1980's, BIW introduced improved cable and connectors for the ground power requirements of commercial aircraft. This product line represents 18% of BIW's business. Other products include connectors for railroad systems as well as for underwater, shipboard, and military applications.
Thurteen Investments, Inc., a Northbrook, Ill. investor company with experience in the acquisition and operation of specialty manufacturing companies, saw the Santa Rosa, Calif.-based company as a good investment. BIW's product line, enhanced by multiple patents covering a range of proprietary applications, is sold on six continents and represents a commanding and increasing share in two growth industries. After Thurteen and Draka negotiated a sales price, Thurteen partnered with ACAS, Ltd., to finance the deal.
With capital resources exceeding $150 million, ACAS works with both buyout firms and corporate managers to help finance the purchase of small and medium-sized companies and to provide companies with capital for growth or liquidity. In some cases, ACAS works directly with corporate managers of companies for sale, providing them with the capital and expertise needed to buy out the parent company. As in the case of BIW, ACAS also works with entrepreneurs who are seeking to buy a company from its corporate owners.
To help Thurteen buy BIW, ACAS purchased a $3.89 million senior note and a $7 million senior subordinated note with warrants of BIW, providing more than half of the total $19.7 million financing. In addition to the $10.89 provided by ACAS, there was also $6 million in junior subordinated debt and $2.8 million in equity. The transaction, announced December 22, 1997, was the first investment by ACAS in the oil services industry.
BIW's new owners, who will retain the current management, believe that the company's prospects are bright. New oil wells are being drilled as worldwide consumption approaches 97% of the available oil supply. Added to this, one-third of new wells use an "artificial lift" technology, the primary market for BIW wellhead connectors. A growing market is also forecast for connectors in the aircraft industry as air traffic travel increases and newer planes require premium power cable connectors to ensure a balanced power supply at airport gates.
"We are excited about the future prospects of BIW under its new ownership," says Ira Wagner, principal of American Capital. BIW has an outstanding product line and reputation for quality service worldwide and we believe they will have continued success in the future. We hope to add more loans and investments like BIW to the ACAS portfolio."
