Harvey Tool buyout reaches EV solidly into double digits, total leverage over 6x - Debtwire

Harvey Tool buyout reaches EV solidly into double digits, total leverage over 6x

25 September 2017 - 12:00 am

Private equity sponsor Summit Partners has emerged as the winner of the auction for cutting tools provider Harvey Tool Company, according to two sources familiar with the situation.


The buyout values Harvey Tool at roughly 16x its USD 25m in LTM EBITDA, sources said. Senior financing, meanwhile, is being provided by Ares at 5x leverage, while a subordinated tranche puts total leverage at 6.5x, the sources continued. That multiple implies a USD 400m total deal size and slightly over USD 160m of new debt issuance.


Harvey Tool had been working with Piper Jaffray on a sale through the summer, this news service reported. Lenders had been offering 4x senior and 6x total leverage through the auction’s second round, as reported. But a competitive auction forced multiples higher.


One of the sources noted that bidders had been attracted by the company’s 30% EBITDA margins and growth from USD 10m in run rate EBITDA since being acquired by incumbent sponsor The Riverside Company in 2014.


The Riverside Company also oversaw an add-on acquisition in 2015.


Rowley, Massachusetts-based Harvey Tool was founded in 1985. It makes specialty tools, used mainly in the specialty machining and metalworking industry, and sells through local distributors. Despite its rapid EBITDA growth and high margins, one of the sources said the company could be subject to cyclical downturns.


However, sources noted that both lenders and sponsors are rushing to perceived quality in the middle market as both seek to put large cash piles to work. For example, healthcare services provider Autism Learning Partners is expected to sell for 15x EV with leverage close to 6x. Printing services provider Digital Room and cake decorations maker DecoPac are also expected to be financed at leverage around 6x.


Business development companies Ares Capital Corporation and Golub Capital are among the lenders in Harvey Tool’s incumbent capital structure, according to SEC filings.


The Riverside Company declined to comment for this article. Harvey Tool, Summit Partners, Ares, and Piper Jaffray did not return requests for comment.


by Bill Weisbrod