Private equity firm Harvest Partners Inc. has nabbed Alside Inc. and sister company AmerCable in a $436 million deal.
The New York equity firm and Alside parent Associated Materials Inc., based in Dallas, reached the definitive merger agreement March 17. Publicly traded Associated will be taken private in the transaction, which is to close in April once a tender offer is completed. The sale price includes $75 million in debt, which will be refinanced.
Harvest formed Harvest/AMI Holdings Inc. for the purchase and agreed to pay $50 per share in cash. William Winspear, Associated's president and chief executive officer, agreed to tender about 46 percent of the outstanding shares of common stock into the tender offer, according to a company news release. Harvest will launch that offer March 22 and has secured financing from a group of three investment banks, officials said.
``They have already committed to the transaction,'' Ira Kleinman, a Harvest Partners general partner, said in a March 18 telephone interview.
The sale of Alside closes months of speculation throughout the vinyl siding industry, where consolidation is expected to continue. Associated officials announced in December their intent to explore alternatives for the business. Although Alside's company-owned distribution system made the firm attractive to a financial buyer, it was less likely that a competing siding maker would want it, according to industry insiders.
Management will remain intact at Alside and AmerCable, Kleinman said.
``We're very excited about Mike Caporale and his team,'' he said. Caporale succeeded Donald Kaufman as chief executive officer of Alside last year.
Once the tender offer is complete, Winspear will retire and Caporale will take over as president and CEO of Associated, officials said. The firm's headquarters will relocate to Cuyahoga Falls, Ohio, where Alside is based.
Robert Marshall, an analyst with Charlotte, N.C.-based Wachovia Securities Inc., expressed surprise that Alside sold for more than seven times its trailing enterprise multiple, a figure reached by adding the value of the company with its debt and dividing that by earnings before interest, taxes, depreciation and amortization.
``The guys at Associated definitely got a premium price,'' said Marshall. ``It's a rich multiple for a small-cap company and especially a company that's a hybrid,'' Marshall said by telephone March 18. ``Usually distribution companies go for a lower multiple.''
Alside operates more than 80 supply centers throughout the United States and four manufacturing facilities in West Salem, Ohio; Ennis and Freeport, Texas; and Bothell, Wash.
The purchase is historic for Harvest, Kleinman said.
``We intend this to be our strategic investment in this industry,'' he said March 18. ``We see nice opportunities to build it up.''
While financial buyers typically have reputations of building up a firm and selling it quickly, Kleinman said Harvest tends to be longer-term.
``Our strategy has really focused on building companies,'' he said. ``We have spent a lot of time building companies.''
Associated reported record growth last year, with a gross profit of $170.5 million on total sales of $595.8 million. Alside's sales represented more than 87 percent of that total. The division's total sales increased more than 20 percent from 2000.
Alside has changed hands four times now, according to Kaufman, whose brother started the firm in 1947. In 1978, Kaufman led the firm into vinyl siding. Alside was publicly traded before U.S. Steel acquired it in 1968. Associated went public in 1998.
``There was a life for Alside after U.S. Steel,'' he said. ``Alside has survived for 55 years. I think that says a lot for the company itself. It's not the shareholders that make the company; it's the people. They're inheriting some of the best people.''
Kleinman said the firm could go public again in a few years. Marshall said taking it public may be one of the only ways for Harvest to get a good return.
``They're going to have to sell or take it public in order to get that return,'' he said, questioning whether Associated's growth is sustainable. The firm's 52-week stock price fluctuated from $15.50 to $51.05. It traded March 18 just below the sale price at $49.57 a share.
