Merit Capital Partners

In October of 2002, a group of former performance chemical and steel industry executives, led by William (Bill) S. Brown III, signed a letter of intent to purchase Excell Materials (“Excell” or the “Company”). Excell provides various services to steel producers, primarily stainless, and also sells aggregates for use in the agriculture, commercial turf and cement markets. The Company is headquartered in Pittsburgh, PA but also conducts operations in Canada, South Africa, Brazil, and Belgium.

Mr. Brown and his management team began their search for a financial partner with several key requirements. It was important to the management group that they maintain operational control of the Company, regardless of whether or not they retained a majority ownership interest. Also, given that the acquisition target had poor existing financial reporting systems and had not hired an intermediary to assist with the sale process, it was important that they find a partner that was willing to spend the required time and effort complete the comprehensive due diligence process alongside the management team. Finally, Mr. Brown and team were looking for a partner that could bring more to the table than just financing.

In addition, Merit’s ability to provide both debt and equity capital out of the same fund proved to be very important in being selected as Mr. Brown’s partner. By structuring the transaction with a significant portion of the capital structure in the form of mezzanine debt and smaller portion of straight equity, management was able to retain a more significant ownership stake for their equity contribution than if the transaction had been funded solely with equity.

Throughout the ten months after signing the letter of intent and selecting Merit as a partner, the transaction process took many unexpected twists and turns. The due diligence effort proved to be a very burdensome task given a lack of available information as well as the acquisition target’s disperse international locations. In addition, the purchase agreement was negotiated and renegotiated numerous times as the sellers repeatedly changed their position. The Merit team worked very closely with management throughout the entire process adding value not simply in the due diligence and purchase agreement negotiations, but also by taking the lead in arranging and structuring the senior debt financing.