Target Information

MiddleGround Capital has successfully closed MiddleGround Carbon CV, L.P., a single asset continuation vehicle (CV) with approximately $440 million in capital commitments. This capital was utilized to acquire Banner Industries, a prominent processor and distributor of metal bar products catering to a variety of industrial and medical markets, alongside A.M. Castle & Co., a leading provider of metals and supply chain solutions for the industrial and aerospace sectors. MiddleGround originally purchased Banner Industries in December 2019 from High Street Capital.

Since the acquisition, MiddleGround has been eager to enhance Banner's performance. Under the leadership of industry veteran Dan Stoettner, who was reintroduced to guide the organization, Banner has aggressively pursued growth and has completed two acquisitions. From 2019 to the last twelve months, the company's revenue escalated from over $100 million to nearly $350 million, with EBITDA improving from approximately $9 million to around $55 million.

Industry Overview

The metals processing and distribution industry is a critical component of both the industrial and medical sectors, contributing substantially to manufacturing and supply chain operations globally. In the United States, market dynamics are characterized by rising demand for high-performance materials used in various applications, including aerospace, automotive, and medical technology. The industry has experienced a trend towards consolidation, enabling companies to enhance their service offerings and maintain competitiveness through operational efficiency and scale.

In North America, companies are increasingly focusing on specialty metals that meet stringent safety and quality standards. This shift is propelled by advancements in technology and the rising importance of materials that comply with regulatory requirements, especially in the medical and aerospace sectors. The result is a landscape where innovation and operational advancements drive growth opportunities, further supporting the demand for focused and specialized providers.

Moreover, supply chain challenges have underscored the significance of integrated solutions within the metal distribution space. Companies need to adapt quickly to changes in demand and supply disruptions, creating a favorable environment for entities like Banner and Castle Metals that can provide robust and agile service offerings. As a result, those companies are well-positioned to capture emerging market opportunities while maintaining strong customer relationships.

Given the strategic importance of metals in various industries, players in this sector face both challenges and opportunities. The focus on sustainability and environmentally friendly practices is becoming increasingly relevant. This has led many companies to implement innovative processes and materials that align with global sustainability goals.

Rationale Behind the Deal

This acquisition was primarily motivated by the opportunity to create a global leader in the metals distribution segment by merging Banner and Castle Metals. By leveraging their complementary strengths and resources, MiddleGround believes this combination will lead to superior operational efficiencies, increased geographic reach, and enhanced product offerings. The continuation vehicle structure allows MiddleGround to maintain ownership of Banner while supporting this merger, thus positioning the new entity for substantial growth.

Additionally, this deal enables a significant liquidity event for Fund I investors, allowing for the return of recyclable capital while facilitating the strategic merger. The consistent growth observed in Banner's performance since MiddleGround's investment reflects the soundness of this strategy and the anticipated success that the combined company will achieve moving forward.

Investor Information

MiddleGround Capital is a private equity firm based in Lexington, Kentucky, specializing in operationally focused investments in the lower middle market, particularly in the industrial B2B and specialty distribution sectors across North America and Europe. Their investment strategy emphasizes value creation through operational improvements, market expansion, and strategic acquisitions.

The firm has established strong relationships with investors, demonstrating their effectiveness in finding innovative solutions in a challenging market environment. They have successfully raised substantial capital to support their investments, fostering an environment conducive to sustainable growth and strategic development.

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This merger between Banner and Castle Metals presents itself as a strong investment opportunity, primarily due to the complementary capabilities and market positions of both firms. The anticipated operational improvements and growth potential foster a compelling case for investors. Combining their expertise allows for a more competitive offering in the specialty metals market, aligning with current industry trends and demands.

Furthermore, the strategic focus on enhancing synergies and expanding distribution capabilities supports long-term value creation, ensuring that customers' needs are met more effectively. The leadership team's industry experience also adds a layer of confidence in achieving these goals.

While the transaction will certainly create initial integration challenges, the independent operation of both brands allows for a smoother transition. MiddleGround’s structured approach, alongside the commitment from Dan Stoettner and his team, should mitigate potential risks associated with the merger, creating a robust framework for success.

Ultimately, the combination of Banner and Castle possesses the potential to redefine the metals distribution landscape, positioning the new entity as a preferred supplier across various high-demand sectors. Given these factors, this deal could well represent a significant value-generating opportunity for both MiddleGround and its investors.

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