Merit Capital Partners
INVESTMENT FOCUS
Peak Sulfur, Inc.
Kansas City, MO
In early 2002, following the successful 2001 acquisition of Blue Circle’s Calera, Alabama lime kiln resulting in the formation of Peak Lime, Merit Capital Partners was again approached by Peak Investments, L.L.C. to support an acquisition. Peak Investments, led by Mike Boyce and located in Kansas City, Missouri, is made up of a small group of experienced chemical industry executives. The firm has a history of acquiring “orphan” chemical operations and improving them through focused management, expense control, capital allocation, and asset management.

Peak Investments had secured an opportunity to acquire Koch Industries’ sulfuric acid plants located in Tulsa, Oklahoma and Riverton, Wyoming. The facilities operate in three segments of the sulfuric acid industry including commercial grade sulfuric acid with applications including food processing and battery production, ultra-pure sulfuric acid used in the electronics and semiconductor industries, and sulfuric acid regeneration (“regen”), a business which involves the reprocessing of sulfuric acid which has been used as a catalyst in refinery operations. While each of these segments were of interest, the regen operations, given the long–term contracts and favorable growth prospects would receive the most emphasis under Peak.

As in the Peak Lime transaction, Merit invested subordinated debt and equity to help finance the Koch transaction. As an unfunded sponsor, a group without an institutionally backed financing source, Peak Investments was most focused on securing the equity and other financing to complete its transaction while maintaining operational control of the Company. Of course, Peak Investments was also interested in maximizing its ownership in the new business. By partnering with Merit, Peak Investments was able to accomplish each of its goals.

Merit invested approximately $12 million of subordinated debt and equity in the business and helped arrange the senior financing for the transaction, facilitating a closing of the transaction in a timely manner. Further, while Merit is represented on the Board of Directors, Boyce and the other Peak Investments managers lead the business day-to-day. Further, Peak Investments earns a management fee for providing this leadership and oversight, and Merit structured incentives such that the Peak managers can earn equity beyond that received for their initial investment based on the results at Peak Sulfur Services.

Following slightly more than a year of strong operations at the former Riverton and Tulsa plants, Peak Investments secured an additional opportunity focused on regeneration. In July 2003, Peak Sulfur Services acquired Arch Chemicals sulfuric acid plants located in Beaumont, Texas and Shreveport, Louisiana. Merit’s investment in Peak Sulfur increased to more than $26 million as it again invested subordinated debt and equity to complete the transaction.