Graham Partners Keeps on Trucking with a Recapitalization of Transaxle
August 28th, 2006
Graham Partners completed its fifth platform investment in just over a year, Friday, recapitalizing TransAxle LLC of Cinnaminson, New Jersey (www.TransAxle.com). TransAxle is one of the largest East Coast remanufacturers of transmissions, differentials, hydraulic pumps and other specialized components for medium and heavy-duty trucks, as well as off-highway equipment. The Company focuses on the “out-of-warranty” segment of the market through its captive branch network consisting of 16 locations across the Eastern Seaboard. TransAxle stands to benefit from the shift of the heavy-duty truck market from manual to automatic transmissions. The Company has also been taking share from independent rebuilders, which generally have limited product offerings, longer lead times and inexperience when it comes to repairing more complicated transmissions.
TransAxle represents Graham’s fifteenth platform company investment and its fifth investment for Graham II, which closed at $465 million in April 2005. Graham’s strategy is to acquire industrial businesses, such as TransAxle, that are benefiting from raw materials and technology conversion trends in their industries, where Graham can utilize its extensive operating resources and industrial network to add value during its holding period.
Rob Newbold, Managing Principal of Graham Partners, stated: “TransAxle is a great fit for us given the Company’s leading market position in a fragmented, high growth niche, where multi-location, larger-scale remanufacturing businesses are expected to take share from independent operators. The Company has strong organic growth prospects and has proven its ability to expand its footprint with modest incremental capital investment.”
Warren Klein, CEO of TransAxle, comments, “We have developed a business model to capitalize on the growth and strong value proposition of remanufactured transmissions. As a result of our efficient remanufacturing process, extensive inventory, and knowledgeable staff, TransAxle has developed an unparalleled reputation for providing mission-critical transmission components on a same-day or next-day basis, which minimizes truck downtime, whereas our competitors require significantly greater lead times. We are enthusiastic about the partnership with and active support of Graham as we expand geographically and continue on our current growth trajectory.”
Broadly speaking, TransAxle participates in two segments of the $14 billion truck aftermarket: (i) the $6 billion power transmission and undercarriage segment and (ii) the $4 billion ‘specialist’ segment. In its geography, TransAxle’s direct addressable market, specifically the market for transmission and differential aftermarket parts for medium and heavy-duty trucks, is roughly $860 million. Growth in the truck aftermarket is expected to continue due to an increase in the number of trucks in operation and the overall longer useful lives of trucks in service. According to MacKay & Company, the total number of miles traveled by trucks increased 109% between 1980 and 2004, driving growth in the replacement parts and service markets. Additionally, the specialist segment is expected to outpace growth in the overall truck aftermarket as specialists, such as TransAxle, continue to take share from single location independent operators.
TransAxle enjoys a market leading position and strong brand recognition in the Northeast. The truck aftermarket is highly fragmented, with the majority of competitors focused on concentrated geographic locations. As such, the Company will focus on the near-term opportunity to further its expansion in the Southeast to augment its addressable market.
Though terms were not disclosed, National City led the senior debt financing, with Golub Capital providing subordinated debt to support the transaction. Goldsmith Agio Helms was the Company’s advisor in effecting the transaction.
About Graham Partners: Graham Partners is a leading, lower middle market industrial private equity firm based in suburban Philadelphia with over $850 million under management. Graham Partners is sponsored by the privately held Graham Group of York, Pennsylvania, an industrial and investment concern with global interests in plastics, packaging, machinery, building products and outsource manufacturing. Graham Partners seeks to acquire industrial companies with revenues between $20 million and $350 million that participate in manufacturing niches where it can leverage its unique combination of operating resources and financial expertise.
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