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Allied Capital Corporation, Washington, DC, intends to acquire SunSource Inc., Philadelphia, PA, to create a privately owned portfolio company controlled by Allied Capital. The two companies have signed a definitive merger agreement, where Allied Capital will pay approximately $72 million in stock or cash for all of the outstanding common equity of SunSource, subject to certain adjustments. Management of SunSource will participate with Allied Capital in the buyout transaction and will retain an approximate 6% ownership position on a fully diluted basis in the company.
SunSource is an existing Allied Capital portfolio company, which obtained $30 million of subordinated debt financing from Allied Capital during the fourth quarter of 2000. SunSource is one of the leading providers of value-added services and products to retail and industrial markets in North America.
The company is organized primarily in two business segments, The Hillman Group, Inc. and SunSource Technology Services, LLC. Hillman provides merchandising services and products, such as fasteners and related hardware items, keys and accessories and identification items to retail outlets, primarily hardware stores, home centers and mass merchants.
Technology Services offers a range of technology-based products and services in the fluid power industry to small, medium and large manufacturers. The company also owns a significant interest in Kar Products, a distributor of maintenance and repair products and inventory management services to commercial and industrial customers in the U.S. and Canada.
'We believed SunSource was an excellent candidate for our mezzanine capital when we first financed the company last year, and we believe that by becoming a majority owner of this company we can provide the necessary access to capital and other resources to further the growth and expansion of the various business segments,' said Bill Walton, Chairman and CEO of Allied Capital. 'SunSource is a leader in its market niches, and is exactly the type of company we target for investment.'
'This is a positive transaction for SunSource shareholders,' said Maurice Andrien, CEO of SunSource. 'Allied Capital is a much larger public company with a liquid stock that has a strong regular quarterly dividend. By approving this transaction, SunSource shareholders will increase their liquidity through the receipt of cash or the stock of a large investment company.'
Allied Capital's investment in SunSource will be structured to provide a current return through interest, dividends and management fee income. The investment in SunSource will include subordinated debt and common stock. In addition, Allied Capital believes there is an opportunity to increase the value of the portfolio company over time.
Allied Capital is the nation's largest business development company, and provides long-term investment capital to support the expansion of growing middle-market companies. The company provides mezzanine debt and equity financing, and also participates in the real estate capital markets as an investor in commercial mortgage-backed securities.
SunSource Inc. has two principal businesses, one focused on retail markets and the other on industrial customers. The retail business comprises The Hillman Group, Inc., including the recently acquired Axxess Technologies business, which sells to hardware stores, home centers, pet suppliers, mass merchants, and other retail outlets principally across North and South America.
Their product line includes thousands of small parts such as fasteners and related hardware items, keys, and identification items such as tags, letters, numbers, and signs. Services offered include design and installation of merchandising systems and maintenance of appropriate in-store inventory levels.
SunSource serves the industrial market with two companies. SunSource Technology Services provides engineering, repair, and fabrication services as well as parts and equipment to manufacturers throughout the U.S. and Canada. The Company's Kar Products affiliate distributes maintenance and repair parts and offers customized inventory management services to commercial and industrial customers of all sizes in the U.S. and Canada.