USA Shade and Fabric Structures
The Modular Division of USA Shade and Fabric Structures, Inc. of Dallas, TX, has been acquired by PlayPower Holdings, a portfolio company of Apollo Investment Corporation (NASDAQ: AINV). Palomino Capital initiated this transaction, assisted in the negotiations, and served as exclusive financial advisor to EnSite Solutions.
USA Shade & Fabric Structure’s Modular Division is a leading designer, manufacturer, distributor and installer of modular fabric structures for playground and vehicle protection applications. Founder and CEO Basil Hayman engaged with Palomino to explore a sale/recapitalization of the business in response to inquiries from a competitor.
USA Shade operated two divisions: 1.) the Modular Division focused on selling pre-engineered, high volume shade structures to schools and car manufacturers and 2.) the Tension Division which provided custom design / build of large architectural installations at stadiums, airports, and other large installations.
- The Modular Division was growing rapidly and generating high margin while the Tension Division was struggling due to dependence on large projects with long lead times, significant chase costs and a competitor undercutting bids at below cost.
- Management, due to complexity of dual business models, had a complex corporate team, leading to high support costs and depressing EBITDA.
- A single strategic buyer for the consolidated entity would discount the division they were not acquiring, or worse, exclude the non-acquired division from the transaction.
- Palomino identified that each division would have unique potential buyers, and a buyer of one division would not value the other division.
- Palomino highlighted the Modular Division as the most marketable business unit based on current market conditions and division performance.
- The Company agreed to bifurcate the financials to separately market the divisions in two sequential stages. This required a CPA firm to attest to the restated financials to provide confidence to potential buyers.
- This strategy allowed EBITDA to be higher as a division versus a fully burdened organization.
- Palomino executed on its strategy to complete two transactions. In both transactions, Palomino was able to market a “stand-alone division” to a larger, global organization, resulting in a larger pool of potential buyers.
- This strategy allowed the sellers to remove most corporate expenses from ongoing divisional operations, thereby increasing the bottom lines of the acquired divisions.
- Total consideration yielded a consolidated EBITDA multiple in the double digits.