Merit Capital Partners
INVESTMENT FOCUS
Peerless Industial Group
Winona, MN
Peerless Industial Group was founded in 1917 in Winona, Minnesota to distribute and manufacture diamond link chains. The company’s first products were tire and traction chains sold through local automobile repair shops and garages in the Midwest. Peerless began offering those and other related products to the industrial and OEM markets during World War II. Today, Peerless continues to be a leading provider of chain and traction products with over $45 million in annual sales.

The Peerless transaction is an excellent example of how our partnerships with small or fundless equity sponsors can be beneficial to both parties involved. In 1997, Merit was approached by Ridge Capital, a fundless equity sponsor, to help complete a management–led buyout of Peerless. Ridge was excited about the company’s long history, industry–leading reputation and its operational excellence. However, Ridge, with limited available capital to invest, was unable to complete the transaction alone.

The buyout required roughly $13 million of senior debt, $13 million of mezzanine capital and $3 million of equity. Ridge Capital could only invest a portion of the equity needed. Therefore Merit invested the entire amount of mezzanine capital and the remaining necessary equity. Importantly, we were able to structure the deal so both Merit and Ridge Capital had influence over key economic and operational decisions of the company. At the close of the deal, Merit owned approximately 65% of Peerless equity with Ridge owning roughly 25%.

Both Ridge Capital and Merit Capital benefited from this arrangement. Ridge was able to participate in an attractive investment that alone it could not have completed and we were able to enhance our expected return by blending our mezzanine investment with equity participation.