Portfolio » Case Studies
Disclaimer: Information about Ontario Drive & Gear Limited and ALCO Manufacturing Corporation LLC is provided solely to illustrate Stone Arch Capital's investment approach, which involves fundamental asset analysis and active asset ownership. It should not be assumed that investments made in the future will be comparable in quality or performance to Ontario Drive & Gear Limited or ALCO Manufacturing Corporation LLC. Stone Arch Capital's past investment experience is not intended to be indicative of the future results of any Stone Arch Capital fund. Past performance is not a guarantee of future results. There can be no assurance that investors in a Stone Arch Capital fund will not lose any of their invested capital. For complete lists of current and past investments of Stone Arch Capital, please refer to the "Portfolio-Current Investments" and "Portfolio-Past Investments" sections, respectively.
Ontario Drive and Gear, Ltd. Case Study
Ontario Drive & Gear Limited ('ODG') is the world's leading manufacturer of amphibious utility/all-terrain vehicles ('ATVs') under the ARGO brand. The company sells on a worldwide basis through a broad network of distributors and dealers. ODG also provides precision-machined gears, couplings, and transmission components to third-party Original Equipment Manufacturers ('OEMs') in the heavy construction, material handling, forestry, and agriculture markets. The company is headquartered in New Hamburg, Ontario.
ODG was formed in 1969 from the combination of a family-owned precision gear business with the intellectual property assets that represented the predecessor vehicle platform for the current-day ARGO. Over time, the family transferred ownership of the business from the patriarch to his two sons, one of whom would continue to lead the business as CEO. The other son remained a passive owner and pursued an unrelated career. The company grew and prospered over many years and economic cycles, and proved to be a formidable and enduring branded product at the expense of numerous 'boutique' manufacturers and competitors that have not survived. In 2005, the CEO and fifty percent owner, opened a discussion with his brother that was motivated by succession and estate planning.The Solution:
The Stone Arch Capital partners were introduced to the owners of ODG in the spring of 2005, leading to a discussion over partnership and opportunities for growth through the summer of that year. ODG's owners were interested in retaining a meaningful stake in their business, while creating liquidity for their respective families, and starting the clock on an eventual management transition for the CEO/owner. Stone Arch worked closely with the ODG team to develop a detailed marketing strategy targeted at the United States and select international markets. After thorough diligence on both sides of the transaction and a very deliberate timetable, in January, 2006, Stone Arch acquired a majority interest in ODG, with the existing owners, including the active CEO, retaining a minority stake in the business. The capital structure included senior and mezzanine debt, Stone Arch's committed funds, as well as the owner's rollover equity. The transaction satisfied the family objectives of liquidity, sustainability, risk reduction, and a continuing ownership interest.
Post transaction, Stone Arch has invested significantly in a revamp of the U.S. sales and marketing effort, while simultaneously investing in plant expansion and new precision gear equipment in New Hamburg. The ARGO maintains its position today as the world leader of the amphibious ATV market, and continues to grow unit volume in the U.S., Canada, and internationally.
ALCO Manufacturing Corporation LLC
Based in Elyria, Ohio, Alco Manufacturing ('Alco') is a niche manufacturer of highly-engineered hydraulic hose fittings, quick connect couplings, tube fittings and other fluid power components. The company has developed specialized manufacturing expertise in turning unleaded steel into close tolerance fluid power components, which significantly differentiates Alco from its competition.
Alco was founded in 1971 by several related parties, the largest of which owned 51 percent of the business (the 'Majority Shareholder'). In 1986, the Majority Shareholder retired from the business and over the years became more interested in seeking liquidity for his interest than in making further investment in the business. By 2006, the remaining operating shareholders of Alco (the 'Management Team') and the Majority Shareholder determined it was best for the company to evaluate options to buy out the Majority Shareholder.The Solution:
Stone Arch became aware of Alco through various business contacts in the Cleveland area and met with the Management Team to evaluate the company's long term prospects. After assessing the situation and the capabilities of Alco, Stone Arch was able to strike a deal with the Management Team and the Majority Shareholder to address certain individual liquidity needs, while rolling the balance of management's ownership into a substantial percentage of the recapitalized company. Stone Arch used the company's existing lender to fund the senior debt in the recapitalization, and funded the balance of the proceeds from its own committed funds. The ability of Stone Arch to quickly and accurately assess the situation, creatively structure a liquidity transaction that satisfied both the needs of the Majority Shareholder and various members of the Management Team, while providing Alco with the flexibility and capital to support future growth, provided the company with a strong platform for future success.
During the investment period, Stone Arch has invested significantly in additional production capacity and the company has grown successfully. Today Alco remains one of the leading providers of highly-engineered fluid component parts in the world.
For more complete information, please visit the Company's website at www.alcomfgcorp.com.