BlackEagle buys division of CD&R portfolio company

The special situations investor has taken over Clayton Dubilier’s stake in a disaster recovery business, marking the third acquisition in BlackEagle’s debut fund and its first in a non-manufacturing business.

BlackEagle Partners, a Michigan-based special situations-focused private equity firm, acquired disaster recovery provider InStar Services Group, formerly a division of Clayton Dubilier & Rice-owned ServiceMaster, for an undisclosed amount.

BlackEagle was founded in 2005 by three former investment professionals from turnaround and special situations investor Questor and a fourth founding member from the Caledonia Group, a turnaround and operations improvement firm. The InStar acquisition marks BlackEagle’s third acquisition in its debut fund, which is reportedly targeting $250 million (€170 million). It also marks the fund’s first investment in a non-manufacturing business.

The Fort Worth, Texas-based company provides disaster response services to events such as fires and floods, building maintenance and restoration and large-loss catastrophe response to hurricanes. Previously, BlackEagle invested in specialised manufacturing businesses Federal Broach & Machine and Rockford Products.

But for BlackEagle, disaster response and specialised manufacturing aren’t worlds apart. “InStar fits with BlackEagle’s investment focus on non-core, underperforming businesses in attractive industries,” said Garrett Kanehann, a partner at BlackEagle, adding that “it has a lot of problems that we can address”.

Among those problems, Kanehann cited the company’s former status as a division of ServiceMaster, which provides housekeeping and residential maintenance services. This forced InStar to compete with its corporate parent for business with residential construction customers. Additionally, Kanehann noted “management had layered on probably too much overhead in the post-hurricane days of ‘04 and ‘05”, which resulted in a bloated cost structure.

 “The separation from ServiceMaster will enable the company to compete for the residential construction business more aggressively,” Kanehann said.

Bryan Tolles, an associate at BlackEagle, added that the management team, which rolled- over its investment stake into the new ownership structure, will be given more latitude to pursue new growth opportunities in the form of new service offerings, locations, customers and possibly even bolt-on acquisitions.

Though he would not disclose the purchase price, Kanehann said BlackEagle made the investment at “an attractive multiple”, given its current financial status. Tolles confirmed that InStar’s current revenue stream was about $100 million, well below the $130 million projected for fiscal year 2005, due to lower levels of hurricane-related recovery work.

But with three investments under its belt, Kanehann cautions that BlackEagle – which targets control investments between $10 million and $40 million in equity capital – has “substantial additional capital available for investing”.