BETHESDA, Md., January 31, 2000 -- American Capital Strategies, Ltd. (Nasdaq:ACAS) announced today that it has completed a breakthrough year in which it strengthened its regional network of offices, added to its industry-leading Internet presence, and increased its portfolio by investing $176 million in 24 transactions. The portfolio additions were funded with the proceeds of its successful equity offering in July, as well as a credit facility provided by First Union in March and subsequently expanded in September and December. American Capital paid $1.74 in dividends in 1999, a 30 percent increase from 1998.
The buyout and specialty finance company made significant additions to its portfolio in each of its three major lines of business: it invested $72 million while acting as equity partner in management and employee buyout transactions; $54 million in support of companies led by well capitalized and sophisticated private equity firms; and $50 million in strategic investments in private and small public companies.
Other highlights for the year included the launch of Capital.com, an on-line investment bank and financial portal providing capital solutions and financial advisory services to small and mid-size companies. Capital.com, Inc. is a portfolio company of American Capital and operates as a stand-alone company. In December, First Union purchased a 15 percent interest in Capital.com for $15 million.
"Capital.com provides owners, CEOs and CFOs access to capital in a time frame that is dramatically shorter than their typical alternative, reducing the time it takes to raise capital by many months," said Malon Wilkus, chairman and CEO of American Capital and Capital.com, Inc. "The ability of Capital.com to rationalize one of the last opaque markets in finance will be revolutionary."
In addition, American Capital exited two investments, Four-S Baking Company and Specialty Transportation Services, Inc. The two exits yielded a total of $17 million in combined return of capital, fees, and capital gains. American Capital's investment in Four-S yielded a 35 percent IRR, while its investment in STS yielded a 43 percent IRR. The company expects to announce 1999 earnings and dividends in February 2000.
"Our core strategy of investing in reasonably priced buyouts of companies with strong management, and market positions produced excellent results," said Adam Blumenthal, president and COO of American Capital. "We continued to find excellent middle market companies that have not experienced the run-ups in valuation found in some sectors of the economy. Working in this underserved middle segment of the economy, our experienced principals and regional office network executed a record number of buyouts working with entrepreneurial management teams."
| TYPES OF TRANSACTIONS IN 1999 |
Amount
($ millions) |
| EQUITY PARTNER IN MANAGEMENT OR ESOP BUYOUT |
| Auxi Health Inc. |
$12.6 |
| Caswell-Massey Holdings Corp. |
4.2 |
| Chance Coach, Inc. |
1.5 |
| Dixie Trucking Company, Inc. |
4.2 |
| Lion Brewery, Inc. |
6.6 |
| MBT International, Inc. |
14.3 |
| The Inca Group |
15.0 |
| Warner Power, LLC |
13.6 |
| TOTAL |
72.0 |
| MEZZANINE WITH PRIVATE EQUITY FUND |
| Clear Holdings, Inc. |
17.5 |
| A.H. Harris & Sons |
10.0 |
| The Parts Plus Group |
5.0 |
| Starcom Holdings, Inc. |
6.6 |
| Confluence Holdings Corp. |
3.4 |
| Transcore Holdings, Inc. |
7.3 |
| Crosman Corporation |
4.0 |
| TOTAL |
53.8 |
| STRATEGIC INVESTMENT |
| Patriot Medical Technologies, Inc. |
7.2 |
| Erie County Plastics Corporation |
10.0 |
| Aeriform Corporation |
7.5 |
| IGI, Inc. |
7.0 |
| Tube City, Inc. |
9.7 |
| Tube City Olympic of Ohio, Inc. |
8.4 |
| TOTAL |
49.9 |
| Total 1999 Investments |
$175.7 |
"One of the most promising developments of 1999 was the increasing importance of the Internet to our deal stream and we expect Capital.com to accelerate this trend," said Wilkus. "Over the last five quarters, 15% percent of our portfolio came from companies that found us directly through our web sites, generating a direct return on our web site investments in what we consider the most comprehensive Internet presence of any private equity company."
In a separate application of its leading Internet experience, the Company provided guidance on the e-commerce strategy of several of its portfolio companies where aggressive Internet development has the potential to create market leadership - including Caswell-Massey, a leading manufacturer and retailer of soaps and perfumes, and MBT, the nation's second largest distributor of musical instruments and accessories.
ESOP EXPERTISE SURVIVES GOOD TIMES
American Capital's investments included $15 million in new investment in ESOP and employee owned companies, a long-time area of market leadership for the company. These investments brought American Capital's portfolio of investments in ESOP companies to $60 million.
"The continuing economic boom reduced opportunities to create new employee-owned companies in 1999, since our core ESOP strategy of allowing employees to trade wages for equity is less effective in good times," said Blumenthal. "However, we built on our market leadership in the ESOP community to find investment opportunities in existing employee owned companies."
American Capital also made add-on investments in portfolio companies Auxi Health, Confluence and Starcom, in each case to fund acquisitions.
PORTFOLIO DIVERSIFIES WITH GROWTH
John Erickson, chief financial officer of the company, said, "The Company continued its strong financial performance through the year, paying $1.74 in dividends, a 30 percent increase over the prior year. The successful exits from prior investments in STS and Four-S, as well as substantial debt repayment by Confluence and DSI show the maturity and seasoning of our portfolio companies, as well as our success at creating value in overlooked companies that we can sell to others."
At year's end, American Capital held investments in industries that include manufacturing, healthcare, media, construction, information technology, wholesale retail, telecommunications and services.
"This year we increased our investment in companies that will benefit from advances in and capital expenditures on technology, such as Clear Communications Group (specializing in telecommunications engineering services) and TransCore Holdings (a provider of transportation-related information technology systems)," said Erickson. "The inclusion of Capital.com in our portfolio marks our entry into yet another industry, the rapidly growing business-to-business e-commerce universe. We expect continued diversification, which is part of our long-term strategy to build shareholder value."
In addition, Erickson pointed out that American Capital's portfolio maintains a balance of fixed and floating rate investments well matched to its capital structure. "Because we are by law required to limit our level of leverage to 50 percent of assets, we believe we have less exposure to a changing interest rate environment than many specialty finance companies," he said. American Capital's debt portfolio is made up of 31 percent floating rate instruments, and 69 percent fixed rate instruments. On December 10, 1999, American Capital's borrowing rate on its credit facility from First Union was reduced from LIBOR plus 250 basis points to LIBOR plus 150 basis points, at the same time that the facility size was increased from 125,000,000 to 225,000,000.
GROWING REGIONAL NETWORK SUPPORTS EXPANDING PORTFOLIO
The company now operates offices in New York, Washington, D.C., Boston, Chicago, Dallas, San Francisco and Pittsburgh, in addition to its headquarters in Bethesda, Maryland, making American Capital one of the largest organizations providing the middle market with sophisticated capital finance solutions.
American Capital raised the number of deals closed per year per principal, from just less than 1.0 in 1998 to 1.6 in 1999, adding professionals who in turn added value to the company and its portfolio.
These offices, opened primarily in 1998, will add staff in 2000, building on an active network of seasoned financial professionals to provide capital solutions to mainstreet companies that have not previously had access to efficient capital markets. American Capital typically provides strategic guidance to the management of its portfolio companies by serving on the boards of directors. The company currently has a board seat at 93 percent of its portfolio companies.
American Capital is a publicly traded buyout and specialty finance company with capital resources exceeding $460 million. Capital.com , a portfolio company of American Capital, provides receivable and inventory financing, machinery and equipment loans and leasing, real estate and construction financing, subordinated debt and equity financing and financing for growth, acquisition, buyouts, ESOPs, Internet development, liquidity and restructurings. Capital.com offers owners and managers access to information and analysis previously available primarily through painstaking research and expensive intermediaries. The site enables users to learn about corporate finance, value their company, build financial models, develop financing memoranda, locate experienced financial professionals and, most critically, source the capital they need, when they need it.
Companies interested in learning more about American Capital's flexible financing and ability to provide senior debt, subordinated debt and equity should contact Mark Opel, Principal, at (800) 248-9340, or visit our website.This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements regarding expected results of American Capital Strategies are subject to various factors and uncertainties, including the uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional or national economic conditions, or changes in the conditions of the industries in which American Capital has made investments.
