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Hyde Park SPAC Seals Deal with Credit Increase
At a time when shareholders have been killing blank check companies to guarantee immediate capital returns, one SPAC tethered to its combination’s completion an increase in a credit facility and narrowly won over investors.
November 6, 2008
The Hyde Park Acquisition Company closed at the end of last month a deal with Kirtland Capital Partners to bring public one of the private equity firm’s portfolio companies. But the success story of the special purpose acquisition company (SPAC) is noteworthy not simply because it happened during a confidence crisis in the asset class that has caused investors to vote down combinations nearly wholesale.
The deal’s execution, which brings public Essex Crane Rental Corp., was made more attractive to investors because its credit facility with Wachovia was negotiated higher in March, when debt was more available and less costly than it currently is. The $20 million increase in the credit facility—from $170 million to $190 million—was triggered to take place once the deal closed at the end of last month. Further, the rare example of a private equity company exiting its investment via SPAC highlights ways that future deals might be executed: namely, having the PE shop that is already fully familiar with the company maintain close ties to its new management through a significant stake in the newly listed entity.
John Nestor and Michael DeGrandis, both managing partners with Kirtland Capital Partners, said that facility was negotiated at a rate more attractive than the price at which most debt now is offered. They declined to offer specific percentages.
The extra capital the now-listed company is to get through its increased credit facility is expected to be used for capital expenditures and some acquisitions, DeGrandis said.
Cranes cost between $1 million and $2 million, he said. Despite the slowdown in construction for housing, construction is applicable to other industries, including infrastructure and energy.
In fact, Essex chief executive Laurence Levy said in a statement: “As we proceed toward completing our acquisition of Essex, we are pleased to report that Essex’s operating performance continues to exceed the March 2008 projections that the transaction value was predicated on. Essex’s contractual backlog and new bookings continue to be strong, particularly for its large capacity crawler cranes… Moreover, we are pleased to report that the current uncertainty in the credit markets has not had an impact on our fully committed debt facility, which will enable Hyde Park to both close the Essex acquisition, and provide sufficient liquidity for future growth and investment.”
Levy, in an interview with MergersUnleashed.com, said that the deal narrowly escaped being voted down after about 18% of its shareholders failed to vote in favor of the combination. However, because the SPAC is structured such that only 80% of shareholders have to sign off on a combination, Essex Crane was brought public by a margin of about two percent. The remaining investors saw their shares redeemed for cash, at a cost of about $18 million to the SPAC.
Kirtland Capital Partners reported in early October having purchased about 1.2 million shares in the company, and, at the end of the month, that it bought a little over 2 million shares, increasing its ownership in the publicly listed company to more than 3 million shares. In its most recent S-1, Hyde Park declared itself to have more than 11 million shares altogether.
Nestor and DeGrandis agreed that this may not be Kirtland’s lone SPAC exit for its portfolio companies. Asset class professionals have said that as exit opportunities for private equity firms diminish elsewhere, SPACs will become a more viable opportunity looking for a sale.
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