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Turnaround firm sees 5x through sale to workers

In a first for the firm, New York-based KPS Special Situations has realized a major return on its investment in Blue Heron Paper Company through a sale back to the company’s management and employees.

KPS Special Situations Funds today announced its exit from Blue Heron Paper Company, a formerly distressed newsprint and paper products company.

A 100 percent ownership of the company has been sold to Blue Heron management and an “employee stock ownership plan (ESOP). This marks the first time that KPS has exited a transaction through a sale to an ESOP.

The exit netted KPS limited partners 5 times invested capital, according to a press release. The size of the transaction was not announced, but Blue Heron has approximate annual revenue of $220 million (€173 million).

KPS first acquired the underperforming Blue Heron in 2000 from the Smurfit-Stone Container Corporation of Oregon City, Oregon. The deal was brought to KPS by Blue Heron’s management. Last year the firm added on a division based in Pomona California, also a former Smurfit asset.

Initially, the transaction was structured such that the largely union-affiliated work force would participate in the deal through an ESOP. The employees belong to the Association of Western Pulp and Paper Workers of America and to the United Steelworkers.

Raquel Vargas Palmer, a principal at KPS, led the deal for the firm.

The ESOP accessed leverage for the transaction supplied by Wells Fargo. The deal was also financed through Blue Heron’s cash flow.

In a statement, Palmer described Blue Heron’s condition six years ago as being “severely underperforming”.

Blue Heron was advised on the recent transaction by Houlihan Lokey Howard & Zukin.

KPS closed its most recent Fund II in 2004 on $404 million. In the past year the firm has realised a string of exits. The firm is led by Eugene Keilin, Michael Psaros and David Shapiro and Palmer.