Tuesday, July 13, 2004 © 2004 Dow Jones & Company, Inc. All Rights Reserved.
Mobile, Ala.-Private equity firm Key Principal Partners, or KPP, has invested $15 million in debt to support the management buyout of publicly traded Christian book and music publisher Integrity Media Inc.
Integrity Media’s co-founder and Chief Executive Michael Coleman struck a deal with existing shareholders in March to take the company private at $6.50 a share – up from $6.25 a share when he first made the bid in November. At the time, Coleman owned about 60% of the company’s stock. He decided to take the Mobile, Ala.-based company private because of increased costs associated with complying with the new Sarbanes- Oxley corporate governance legislation passed in 2002.
KPP, based in Cleveland, funded the buyout of the company’s minority shareholders through a seven-year senior subordinated debt facility with detachable equity warrants. The debt came out of KPP’s first $300 million fund, which is now about 35% invested.
The deal was also financed through a senior loan provided by LaSalle Bank NA. As part of the transaction, Integrity’s management will roll their equity into the new entity.
The $6.50 per share valued the total transaction at about 6.3 times Integrity’s 2003 earnings before interest, taxation, depreciation and amortization – which was about $1.9 million on revenue of $74.3 million. KPP plans to support the existing management’s strategy to grow the company.
“Being private will take some cost out of the company because of Sarbanes-Oxley and the founder will be free to invest in growth without having to meet quarterly earnings estimates,” said KPP’s Vice President Cindy Babbitt, who will take a seat on the Integrity’s board.
The deal is the second time KPP, which is the private equity arm of KeyCorp, has helped take small company private in a management-led buyout. The firm’s first “going private” deal came in December when the buyout shop provided $13.5 million in subordinated debt to help OAO Technology Solutions complete a going private transaction.
“Integrity was not really getting any benefit out of being public and, post Sarbanes- Oxley and post Enron and World com, a lot of these smaller companies are realizing that the cost to remain public has risen dramatically,” said John Sinnenberg, a managing partner of KPP.
He added that the firm is increasingly looking at partnering with a large shareholder to take smaller public companies private. “We’re looking at public companies where there is at least a 35% ownership block that wants to take the rest of the company private,” Sinnenberg said.
Top institutional holders of Integrity Media’s stock include Loeb Arbitrage Management, Financial & Investment Management Group Ltd and Dimensional Fund Advisors Inc.