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$1.3 billion invested,
$190 million in dividends paid since 1997 IPO
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Vol. 3 No. 3
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(800) 248-9340
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July 2002
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FIRST HALF 2002 NEW INVESTMENTS TOTAL $250MM,
UP 69% FROM FIRST HALF 2001
EQUITY OFFERING RAISES $77 MILLION
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Table of Contents
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69% Growth in New Investments, First Half 2002
Equity Offering Raises $77 Million
Second Quarter Investments
Investment in Hospice Provider
$10 Million in Lubrication Equipment Manufacturer
$21.5 Million in Buyout of Ultra-Precision Machining Systems Company
$6 Million in Acquisition for Portfolio Company Warner Power
$13 Million in American Decorative Surfaces
$31 Million in Children’s Apparel Wholesaler, Retailer
$19.5 Million in Personalized Novelty and Souvenir Supplier
$13 Million in National Distributor of Home Entertaiment Products
Seeking Acquisitions
15 American Capital Portfolio Companies Seek Add-on Acquisitions
Portfolio News
Two Gains Realized: 24% and 30% Compounded Annual Return
Corporate News
Continued Russell 3000 Membership; Four Business Development Companies Now in Index
Adam Blumenthal Resigns to Take New York City Finance Post
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69% Growth in New Investments, First Half 2002
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American Capital New Investments, First Half 1998-2002
$000
Total Invested Since August 1997 IPO: $1.3 Billion
New investments for the first half of 2002 were $248 million, a 69% increase over the same period in 2001.
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Equity Offering Raises $77 Million
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American Capital announced on July 10 that the company sold 2.9 million shares of common stock to the public at $26.50 per share for total gross proceeds of approximately $76.9 million. The offering was underwritten by Salomon Smith Barney and Wachovia Securities. American Capital granted the underwriters an option to purchase 435,000 shares at $26.50 per share to cover over-allotments. American Capital now has $1.3 billion in capital resources.
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Investment in Hospice Provider
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 In June we invested in a company formed by KRG Capital Partners LLC to purchase Trinity Hospice LLC, one of the largest providers of hospice care in the United States. American Capital’s investment took the form of a revolving credit facility, senior secured notes, and preferred and common equity. Trinity was formed in 1998 to provide physical, emotional and spiritual care to terminally ill patients. Based in Tulsa, the company operates in Oklahoma, Louisiana, Missouri, Mississippi, Arizona, Kansas and Pennsylvania.
In contrast to traditional medical care, which is “curative“ in nature, hospices focus on “palliative“ care, which attempts to manage a patient’s physical pain caused by disease in addition to addressing the psychosocial and spiritual needs of both patients and their families. Trinity does not own or operate healthcare facilities, but rather focuses its resources on providing services to patients primarily in their own residences, or in assisted living facilities or third-party nursing homes where the patient is living.
Click here for more information about Trinity.
Contact Darin Winn, Principal, or call (214) 273-6630.
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$10 Million in Lubrication Equipment Manufacturer
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 We invested $10.25 million of senior subordinated debt with warrants in Alemite Corporation, a leading manufacturer of high-quality lubrication equipment. The investment partially financed Sentinel Capital Partners’ acquisition of Alemite from Invensys plc. AmSouth Capital Corp. was the senior lender. Alemite management invested in the common equity and for the first time owns a stake in the business.
Founded in 1919 as a manufacturer of castings, Alemite, now with 350 employees, sells approximately 2,800 lubrication products, including pumps and reels, grease guns, grease fittings and automatic lubrication devices to hundreds of industrial customers as well as consumer automotive customers. Alemite services these customers from its Johnson City, TN plant and Charlotte, NC corporate headquarters.
Click here for more information about Alemite.
Contact Brian Graff, Principal, or call (212) 213-2009.
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$21.5 Million in Buyout of Ultra-Precision Machining Systems Company
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 We invested $21.5 million in an acquisition corporation that purchased all of the outstanding stock of Precitech Inc., a designer and manufacturer of ultra-precision machining systems. The new company acquired Precitech from the Permira Funds and affiliates and certain managers of Taylor Hobson Limited. American Capital controls 88% of the company. The investment took the form of a senior credit bridge facility, senior term loan, senior subordinated note with warrants and preferred and common equity. Management made a significant investment in the company.
Founded in 1962, Precitech serves a global customer base from a state-of-the-art facility in Keene, NH. Precitech is one of only a handful of companies in the world that are able to commercially manufacture machine tools capable of machining components to nanometric levels of accuracy. Its products are critical in the manufacture of infrared optical components used in certain precision guided missiles, pick-lenses for DVD and CD players, contact lense molds, disk drive components, and micro-lenses and interconnects for fiber optic systems.
Click here for more information about Precitech.
Contact Robert Klein, Principal, or call (212) 213-2009.
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$6 Million in Acquisition for Portfolio Company Warner Power
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 We invested $6 million in our portfolio company Warner Power LLC to finance the acquisition of Daykin Electric Corp. Warner is a producer of highly customized industrial power conversion supplies and electronic ballasts. Daykin designs, manufactures and markets transformers, transformer disconnects and power supplies used primarily in industrial control applications for auto industry machine tools. American Capital’s investment took the form of a senior term loan and a junior subordinated note with warrants.
Founded in 1968, Livonia, MI-based Daykin is now a certified provider for Ford, General Motors and Daimler Chrysler. The combined companies have 150 employees.
See the chart below for more information about American Capital's platform companies
Click here for more information about Daykin.
Contact David Ehrenfest Steinglass, Principal, or call (301) 951-6122.
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$13 Million in American Decorative Surfaces
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In May we invested $13.7 million in American Decorative Surfaces Inc. to fund the purchase of the St. Louis area operation of Decorative Surfaces International Inc. (DSI) from the DSI bankruptcy estate. The investment, in the form of preferred stock, gave American Capital 100% ownership of the company and was predominately used to retire senior debt. The purchase price included the assumption of $24.5 million of debt owed to American Capital by DSI. American Decorative Surfaces will continue the business of manufacturing decorative paper and vinyl surfacing material for the home and industrial markets. LaSalle National Bank provided $14.3 million of senior debt to American Decorative Surfaces.
Separately, the Biddeford Textile business, a manufacturer of electric and conventional blankets, emerged from bankruptcy, conveying title to its manufacturing facility to Biddeford Real Estate Holdings, Inc., a wholly owned portfolio company of American Capital. Prior to the reorganization, American Capital held a first lien on the manufacturing facility as collateral for its loan to Biddeford Textile.
Click here for more information about these transactions.
Contact Gordon O’Brien, Principal, or call (301) 951-6122.
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$31 Million in Children's Apparel Wholesaler, Retailer
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 In May we invested $31 million to partially finance the asset acquisition of Hartstrings Inc. by Keystone Holdings LLC. Hartstrings is a leading designer, wholesaler and retailer of classic coordinated children’s apparel sold under the hartstrings, kitestrings and k.c. parker labels. American Capital funded a senior term loan, senior revolving credit bridge facility and a subordinated note with warrants.
Hartstrings was founded in 1980, opening the first of its 21 retail stores in 1986. It now has over 250 employees. Cash flows have risen steadily since 1996. Sales rose during the recent recession, with retail sales up nearly one-third from 1998 to 2001, and its earnings track record has been consistently strong and growing. The company’s leading wholesale accounts include Nordstrom, Lord & Taylor, Saks Fifth Avenue and Neiman Marcus.
Click here for more information about Hartstrings.
Contact Ken Jones, Principal, or call (610) 238-0210.
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$19.5 Million in Personalized Novelty and Souvenir Supplier
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Also in May, we invested $19.5 million in Stravina Operating Company LLC, a leading designer and supplier of impulse-purchase novelty and souvenir items. American Capital’s investment took the form of senior subordinated debt and common equity and was part of the acquisition of Stravina by Blue Capital Management LLC from Milestone Partners. Crescent Private Capital also provided common equity. Union Bank of California was the senior lender. Stravina management rolled over a significant portion of its common equity.
Stravina, based in Chatsworth, CA, is the leading supplier in its categories to mass merchants and large chains. The company sells to five of the top ten retailers in the U.S., and has seen sales increase significantly over the past several years. Among the company’s products are personalized key chains, photo frames, pens, pencils, rulers and Post-It notes, all adorned with individual names. Its souvenir products, sold at national parks, major theme parks, and airport and hotel gift stores, include magnets, key chains, pottery, plush toys and shot glasses.
Click here for more information about Stravina.
Contact Jeri J. Harman, Principal and Managing Director, or call (818) 676-1222.
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$13 Million in National Distributor of Home Entertaiment Products
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In May we invested $13 million of senior subordinated debt in a national distributor of home entertainment products in a transaction led by a leading private equity firm. We have been requested by the sponsor and our portfolio company not to release further information about the company until they have concluded the process of informing their customers and suppliers.
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American Capital Portfolio Companies Seek Add-on Acquisitions
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Of American Capital’s 65 portfolio companies, those listed below are actively pursuing consolidation strategies. If you have opportunities that fall within the industries of these companies, please contact the corresponding Principal. We are also interested in investing in new platform companies in these and related industries.
American Capital Portfolio Companies: Platforms
| Portfolio Company |
Industry |
SIC Code |
Contact |
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Aeriform Corp. |
Industrial Gas and Hardgoods |
7389 |
Roland Cline
(415) 591-0120 |
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Auxi-Health, Inc. |
Home Health Services |
8082 |
David Steinglass
(301) 951-6122 |
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DanChem Technologies |
Specialty Contract Chemical Manufacturer |
5169,2869,2833 |
David Steinglass
(301) 951-6122 |
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European Touch Ltd. |
Salon Appliance Manufacturer |
3999 |
Gordon O’Brien
(301) 951-6122 |
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The Inca Group |
Mfr. of Rack Shelving, Steel Tubing |
3317 |
Gordon O’Brien
(301) 951-6122 |
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Iowa Mold Tooling, Inc. |
Mfr. of Specialty Service Vehicles, Material Handling Systems, Specialty Cranes |
3523, 3531, 3532 |
David Steinglass
(301) 951-6122 |
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Logex Corp. |
Contract Carrier of Industrial Gases |
5169 |
John Thornton
(415) 591-0120 |
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MBT International, Inc. |
Musical Instrument Distributor |
5736 |
John Thornton
(415) 591-0120 |
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Network for Medical Communication & Research, LLC |
Provider of Specialized Medical Educational Programs |
7389 |
Darin Winn
(214) 273-6630 |
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PaR Systems, Inc. |
High-precision Robotics |
3559 |
David Steinglass
(301) 951-6122 |
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Precitech, Inc. |
Ultra-precision Machining Systems |
3540, 3559, 3825, 3827 |
Robert Klein
(212) 213-2009 |
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Weston Solutions, Inc. |
Environmental Services |
1794, 8711, 8734, 8744, 8999 |
David Steinglass
(301) 951-6122 |
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Sunvest Industries, LLC |
Metal-related Contract Manufacturing |
3499 |
Jeri J. Harman
(818) 676-1222 |
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Texstars, Inc. |
Designer, Mfr., Aerospace & Mass Transit Components |
3083, 3089, 3544, 3728 |
David Steinglass
(301) 951-6122 |
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Warner Power, LLC |
Mfr. Power System Supplies, Electronic Ballasts |
3612 |
David Steinglass
(301) 951-6122 |
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Two Gains Realized: 24% and 30% Compounded Annual Return
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We partially exited two investments in the second quarter. We partially exited our investment in subordinated notes issued by IGI Inc., earning a 24% compounded annual return, considering the value of American Capital’s remaining equity interest. We partially exited our investment in subordinated notes issued by Omnova Solutions Inc., earning a 30% compounded annual return.
These are American Capital’s eleventh and twelfth exits since its August 1997 IPO. American Capital’s blended return for all exits since its IPO is 27%. American Capital’s annual return to its shareholders from its IPO through the end of June is 22.7%, taking into account reinvestment of $8.98 of dividends paid during that period.
Click here for a chart detailing American Capital’s portfolio gains.
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American Capital Continies Russell 3000 Membership; Four Business Development Companies Now in Index
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The Frank Russell Company has retained American Capital in the Russell 3000 as part of the stock index’s annual reconstitution. Russell had earlier included American Capital, and other business development companies (BDCs), in a preliminary list of companies slated for removal. Russell’s apparent rationale for removal was that American Capital, like other BDCs, is structured as a closed-end fund. American Capital and others addressed Russell’s concerns, demonstrating significant structural, operating and legal differences between BDCs and most other closed end funds.
The Russell 3000 now includes four business development companies: American Capital (Nasdaq: ACAS), Allied Capital Corporation (NYSE: ALD), Gladstone Capital Corporation (Nasdaq: GLAD) and MCG Capital Corporation (Nasdaq: MCGC).
“Russell’s decision underscores American Capital’s place, and that of other business development companies, in a representative, objective benchmark index of publicly traded companies,” said American Capital Chairman, President and CEO Malon Wilkus. “Business development companies are a distinct asset class that provide public investors with the opportunity to invest in private companies with all of the safeguards of the public equity markets. They are an essential part of the community of public companies.”
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Adam Blumenthal Resigns to Take New York City Finance Post
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Adam Blumenthal resigned from American Capital effective June 10 in order to take the post of First Deputy Comptroller/Chief Financial Officer of the City of New York. Blumenthal had been Vice Chairman of the company and a member of its board of directors.
Blumenthal’s responsibilities in his new job include asset management for the city’s $100 billion pension funds, oversight of the city’s debt issuance activities, and budget analysis and forecasting.
Click here for the complete press release.
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This newsletter contains forward-looking statements. 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.
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