MCM Capital Acquires ESSCO
MCM Capital Partners II Acquires Electric Sweeper Service Company And Plans Rapid Expansion
Transaction Positions Incumbent Management to Pursue Aggressive Growth
September 1, 2005
CLEVELAND, OH – MCM Capital Partners II (“MCM”), a Cleveland, Ohio-based private equity firm and a leading investment firm dedicated to investing in businesses generating up to $100 million in annual revenues, is pleased to announce its acquisition of the Electric Sweeper Service Company (“ESSCO”). ESSCO, an 81-year-old business, is the nation’s leading wholesaler of vacuum cleaner parts and vacuum cleaners to independent dealers, serving more than 3,200 of the 10,000-plus independent vacuum dealers in the United States.
MCM acquired ESSCO through a leveraged recapitalization transaction, providing Chief Executive Officer Robert Merckle, a 35-year industry veteran, with personal liquidity and preservation of management responsibilities. This transaction also will expand ownership of ESSCO to include a broader group of managers who average more than 14 years of experience with the Company. Financial terms of the transaction are not being disclosed.
Moving forward, MCM’s Principals will work alongside Merckle and his management team to invest significant resources that will expand ESSCO’s private label product lines, spur sale of parts and supplies to new markets, uncover strategic acquisition opportunities and improve overall distribution capabilities. The Company possesses several competitive advantages that, over time, have earned it national recognition as the leader in its industry: ESSCO serves its customers with the most highly trained sales force of any company in the segment; its sophisticated software and hardware systems provide customers with real-time updates on product availability and order status; infrastructure investments have streamlined the efficiency of its warehouse operations and the accuracy of its ordering system, leading to a 98 percent fill rate; and its skilled management team and employee base ensure sound decision making and prompt order execution. Therefore, ESSCO’s strategy seeks to capitalize on its capabilities and national reputation by broadening its footprint beyond the Midwest.
“ESSCO is nationally recognized for providing exceptional customer service, as demonstrated by its 98 percent fill rate. Additionally, the Company has yet to establish operations west of the Rocky Mountains, so we see tremendous upside potential,” said Jay Poffenberger, Managing Director and Principal of MCM. “Since Bob and his wife, Bunnie, acquired the Company in 1989, it has experienced a compound annual growth rate approaching 20 percent, with margins that far exceed other distributors we have looked at acquiring in the past.”
“ESSCO is clearly the leader in the niche market it serves,” said Steven Ross, Director and Principal of MCM. “Nearly 80 percent of the Company’s customers regard ESSCO as their primary supplier, with nearly 99 percent considering ESSCO as primary or secondary. Additionally, ESSCO is located in the heart of the vacuum cleaner industry. From its centralized location, products can be shipped to the East Coast and westward to Kansas and Nebraska within two days. Through its Web site, www.essco.net, the Company provides customers with full e-commerce functionality and easy access to its database of parts, equipment and schematics.”
ESSCO is the first company acquired by MCM’s Principals using funds raised through MCM Capital Partners II, L.P. (“Fund II”), the Firm’s second institutional fund and third pool of investment capital. Capital committed to Fund II is being used to identify and acquire controlling equity interests in North American smaller middle-market manufacturing, distribution and service businesses with annual sales of $20 million to $100 million. MCM’s Principals anticipate investing Fund II capital in seven to ten companies over a period of three to five years.
MCM’s acquisition of ESSCO occurred only ten days after the Firm announced the successful completion of its sale of MicroGroup, Inc., a Medway, Mass.-based manufacturer of precision, miniature machined components, fittings, valves, and small diameter stainless steel and alloy tubing. The sale generated a 46 percent realized internal rate of return (“IRR”) for MCM and its investors, or approximately 3.5 times the initial investment amount over a 38-month holding period.
“The smaller end of the middle market best suits MCM’s strengths,” said Mark Mansour, Managing Director and Principal of MCM. “Our extensive deal sourcing network provides us with superior access to the 30,000-plus companies that populate this niche. Additionally, transaction inefficiencies within the smaller end of the middle market have enabled MCM to acquire equity interests in companies at lower purchase price multiples than would otherwise be possible within the middle market.”