NEWS

by Maureen Flanagan

As America's interest in paddle sports grows, two companies are combining a passion for water adventure with an innovative and entrepreneurial approach to the design and manufacturing of canoes and kayaks. Wilderness Systems Inc., the third largest U.S. manufacturer of kayaks, and Mad River Canoe, Inc., the country's second largest canoe company, teamed up in October 1998 to form Confluence Holdings Corp. The merger was sponsored by a team of equity investors led by Westbury Capital Partners and financed by American Capital (NASDAQ Symbol: ACAS), a buyout and specialty finance company based in Bethesda, MD. The new company will offer one of the industry's most comprehensive lines of paddle sports products, including canoes, kayaks and all the accessories.

"There's a real synergy between these two companies," says John Freal, American Capital's Principal who worked on the transaction. "Mad River has a well-established brand name, known and respected for more than twenty-five years, in addition to a successful line of paddle sport accessories. Wilderness is a rapidly growing company in an expanding market with a wide distribution system," he notes. "The fit was good, providing great potential for each company to bring its strengths to the other and realize benefits in opportunities and growth."

Andy Zimmerman, co-founder and president of Wilderness Systems and now the CEO of Confluence, agrees. "Our two companies paddling in tandem will make a much stronger company," he said. "We each started out as paddling enthusiasts looking to build a better boat, and that quest for excellence still drives both companies today."

Zimmerman and John Sheppard founded Wilderness Systems in 1985 in Zimmerman's garage, where they built whitewater kayaks for themselves and their friends. They moved into the fast-growing touring and recreational kayak market, pioneering new designs using composite construction techniques and advanced combinations of materials. In 1992, Wilderness introduced its first rotationally molded plastic kayak, Sealution II, and business took off.

The company now has 125 employees and occupies a 138,000 square foot facility in Trinity, N.C. It produces more composite designs than any other kayak manufacturer in the United States, offering 30 models in five different lines. Wilderness also makes the Trinity Bay line of inexpensive kayaks for the mass market and the WindRider sailing trimarans. The company sells its products through a large staff of field reps to some 300 U.S. and international dealers. In 1996, Wilderness Systems was presented with the North Carolina Governor's Award for Entrepreneurial Company of the Year and was recognized in 1995 as Canoe and Kayak magazine's Manufacturer of the Year.

Mad River Canoe has also been an innovator in design and construction, pioneering the introduction of Kevlar to the sporting goods industry in 1974. Its roots lie in Waitsfield, Vermont, where Jim and Kay Henry started making canoes in 1971 in their woodshed. The company now offers canoes in 24 models in four different materials and has become the leader in the high-end canoe market. It also offers the industry's most complete line of canoeing and kayaking accessories through the Voyageur Division which it purchased in 1989.

In addition to numerous awards for canoe construction and design, Mad River has maintained a high profile by sponsoring such promotions as its nationwide campaign, "You Can Canoe! Days." Mad River's canoes have been paddled all over the world -- participating in the 1983 Ultimate Canoe Challenge, a 3-1/2 year, 28,000-mile odyssey on U.S. waterways; crossing the Arctic Ocean in a specially made canoe sled; and taking first place in the 350-mile Arctic Canoe race in Tornio, Finland.

In deciding to combine, the most important factor was "the desire on the part of each company to find a paddle sports partner with a non-competing product line that shared a commitment to quality, service, and fun," according to Kay Henry, who will serve as a member of the Board of Directors of Confluence. To accomplish the merger, the companies lined up a team of equity investors led by Westbury Capital Partners, Inc. of Westbury, N.Y. Other investors included Lochridge & Company and executives from Mad River and Wilderness. American Capital, with expertise in financing acquisitions and mergers, handled all the debt financing for the acquisition.

"This transaction demonstrates American Capital's flexibility. We moved quickly to meet the borrower's needs, including bridging the revolving credit facility to accelerate the closing," said Malon Wilkus, American Capital President and CEO. American Capital's $18 million of investment and financial commitments included a senior loan and mezzanine loan. Since American Capital became a publicly traded company in August 1997, it has invested in many different middle-market companies in need of capital for expansion or for liquidity and restructurings. It has also invested in employee and management buyouts. The investment in Confluence Holdings marks its first in the paddle sports industry.

By capitalizing on the individual strengths of the two companies, Confluence Holdings is positioned to take a dominant role in the paddle sports industry. Wilderness Systems has a strong field-based sales organization. When added to Mad River Canoe's high level of service and strong promotional programs, the mix will allow both companies to expand the markets for their quality products. As part of the same family, they will be able to achieve cost savings through operating efficiencies and sales and marketing synergies. Both companies, however, will continue to operate as separate businesses and keep their own distinct brand identities.