Prof. Ian Giddy, New York University
qIn a deal that closed in 2005, Brockway Moran & Partners purchased Woodstream Corp., a maker of wild animal cage traps, rodent control devices and pesticides, from Friend Skoler & Co. LLC. The $100 million purchase price is equivalent to between 6.5 and 7x EBITDA.
qOf the equity, Brockway contributed 85% of the total, with management chipping in 10%. Lenders Antares Capital Corp. and Allied Capital Corp. fill in the remaining 5% gap. Total equity represents approximately 40% of the purchase price. The equity sponsors aim for a 27% rate of return in this investment.
qOn the debt side, Antares led a $58 million senior facility, along with Merrill Lynch and GE Capital Corp. The senior debt component also contains a revolver to be used in the future as working capital (and not included in the $100 million purchase price). CIT Private Equity and Denali Advisors LLC provided a subordinated note in the amount of $17 million.
A summary of the financing terms follows:
1. What is the effective rate of return to the mezzanine investor?
2. What is the effective cost of the mezzanine finance to Woodstream?