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Bain Rolling With Keystone Buy
September 22, 2003

Ken MacFadyen/Buyouts/Sep 22, 2003 -- Bain Capital has been on a buying binge the last few months, moving into the hipper segment of the buyout market lately with its purchase of Bombardier's recreational products division, and most recently a secondary buyout of Keystone Automotive, a seller of wheel rims and other specialty automotive parts.

Bain acquired Keystone from a consortium comprised of Advent International, Littlejohn & Co. and GE Commercial Finance, paying roughly $440 million for the after-market auto parts supplier. Bank of America will provide financing for the transaction, which is expected to close in the fourth quarter. Terms of the deal were undisclosed.

Keystone Automotive Operations is a distributor of automotive parts and accessories in the specialty automotive after-market. The company, headquartered in Exeter, Pa., carries more than 650 different vendor lines, and its product categories include car, truck and four-wheel drive accessories, wheels, tires and performance products. However, despite its spot in the auto-parts sector, the characteristics of Keystone and its specific segment don't fall in line with most others in the industry.

"This is not an auto parts buyout per se," said Steven Zide, a managing director with Bain. "Keystone is not carburetors and spark plugs. This company is a distributor of customization products-either for performance or cosmetic," a niche, he described, that is not cyclical like other auto-parts distributors.

Bain is no stranger to distribution, having made a number of similar investments in years past. Among those, Bain has locked up buyouts of Unisource Worldwide, a printing and imaging paper distributor, and Broder Bros. Co., a sportswear distributor that recently acquired Linsalata Capital's Alpha Shirt Co. in a $230 million add-on deal.

"We've got a lot of institutional knowledge, which should allow us to add value to the business," Zide said.

Bain will acquire Keystone through its Bain Capital Fund VII, a $2.5 billion fund. In exiting the company, Advent, Littlejohn and GE Commercial Finance all pocketed a healthy profit, with returns ending up "north of four times" total equity, according to Michael Klein, president of Littlejohn.  The consortium originally acquired Keystone in 1998, with each party contributing a $20 million equity stake to the roughly $200 million purchase price.

"Back in '98 there was very little competition for this company," Klein said. "There was no senior management, and most people viewed Keystone as a cyclical, low-margin business. But this company serves these parts to a very compassionate consumer, and when you're selling customized parts and accessories the growth is more stable [than with standard auto parts distributors]."

Under the consortium's umbrella, Keystone grew from having revenue of $170 million to $350 million, while the profits roughly doubled, with EBITDA of around $50 million to $60 million, according to published reports. The company's distribution coverage also expanded its reach from 13 to 39 states.

Bob Taylor, a partner with Advent, attributed Keystone's growth to enhancements in its distribution scheme. "When we acquired the company, it had one large distribution center stocking 160,000 SKUs (Stock Keeping Units)," Taylor said. "We set up two large distribution centers, 16 satellite warehouses and built an operational structure to support an expanded geographic platform."

The consortium also supplemented the business with a couple small add-on acquisitions, although Klein cited that Keystone's growth-roughly 8% to 9% a year-was primarily driven through organic expansion. For the deal, Advent, Littlejohn and GE Capital originally teamed up with the four Keystone co-founder including Joe Amato, a legend on the Hot-Rod racing circuit.

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