About Us: investment success

Case Studies

SAGA

SAGA was the U.S. division of a large German holding company. The U.S. management team knew that the German parent was struggling and in need of cash. Then they recognized a once-in-a-career opportunity. If they could lead a MBO they could provide the parent with cash and get control of their future. But where to get the money?

Through one of their suppliers they found Rick Rickertsen who jumped in with management and SAGA CEO Dan Gillis to get a deal structured. They met in a hotel for an hour and shook hands on a deal where management would own 17% of the company. The team needed to move very quickly to satisfy German bank covenants and did so by closing the deal within ten weeks.

In the first year after closing, the team grew revenue to $170 M and more than doubled profits to $22 M. The company went public in the first year on the New York Stock Exchange and Dan Gillis found himself banging the closing gavel on CNN. Over four years, the deal returned over $300 M on the original $30 M investment, one of the most successful MBOs ever completed. Now we are proud to have Dan Gillis on our Advisory Board, partnering with us to generate value for our LPs.

Auction Finance Group

Auction Finance Group (“AFG”) was a growing Miami, Florida based finance company providing inventory financing to auto dealers throughout the US and Canada. But to grow the business more aggressively, CEO Steve Simon knew that he had to think about the traditional industry model a bit differently. After thoroughly researching a strategic plan, he chose a path of going upstream and acquiring his distribution. That meant he needed to inject his financing programs at the point of sale and to do so required owning the auto auctions where dealers go to buy and sell inventory.

The auto auction industry by most measures is an attractive non-cyclical service business with high barriers to entry, great cash flow and excellent growth prospects. The US industry had already consolidated, but Steve knew from his customer relationships in Canada that the big US acquirers had not yet focused on our next door neighbor. AFG’s first target was Canada Auto Action Group (CAAG), a five auction chain based in Toronto. By aggressively courting the retiring owners through the force of his unique personality, Steve was able to get to a definitive term sheet. But how to finance it and do so quickly?

Through an existing investor, Steve was introduced to George McCabe and his fund, FBR Financial Services Partners, LP (FSP). George and his team were able to promptly understand and value the deal which allowed the financing to be in place before expiration of the term sheet. Auction Finance Group’s valuation represented 4.5 times trailing cash flow. More attractively priced acquisitions followed and were financed by a structure that McCabe helped to put together that included mezzanine debt from Ares Capital and Whitney & Company with senior debt provided by the Bank of Montreal. This financing allowed Steve to execute acquisitions quickly, integrate them and offer his floor plan financing at each acquired auction. Plus, the auction volume at the acquired locations was booming.

Over the course of two years, CAAG grew to own approximately 65% of the Canadian market due to its reputation for superior customer service and its expansive floor capacity enabling approximately 650 auctions every year. As a result, CAAG became an attractive acquisition to the US auction operators. After a robust auction that delivered term sheets from all major US acquirers, AFG was sold in an all cash transaction to Adessa Auto Auctions (NYSE: KAR). The valuation represented 8 times trailing cash flow and FSP received a cash on cash return of 3.2 times its original investment after only 2 years. Steve Simon partnered with a knowledgeable investor in order to quickly execute on an opportunity that could not exist for long. Pine Creek is ready to work with you to replicate this type of success.