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Safety Tubs, LLC

Closing Date: 07/22/2010

Acquired by American Standard Brands | Industry: Manufacturing | Sub-Industry: Kitchen and Bath Products

Deal Overview

Safety Tubs was a great company, in the right industry, at the right time, and needed to determine what its next step was going to be. The company was staring down three options for the future:

• Raise mezzanine or other debt financing to facilitate the tremendous growth that it was experiencing
• Recapitalize the business and partner with an experienced private equity group
• Complete divestiture of the Company to a large strategic corporation

With preference split equally between the three options, the decision was made to approach a broad range of lenders, subordinated debt providers, and private equity groups, as well as an extremely targeted group of strategic companies. The initial outreach spanned nearly 100 companies and was met with almost universal acceptance. Safety Tubs, although only formed less than ten years prior, had grown to be the number two provider of walk-in bathtubs, and was the clear leader in acrylic based walk-in bathtubs. The growth that had been achieved by management, as well as the intellectual property that the company had developed, resulted in high levels of interest from the professional investor community.

After collecting more than 40 executed confidentiality agreements, as well as receiving multiple acceptable indications of interest, an existing partner approached management with the hopes of furthering their already strong relationship. Safety Tubs had a long standing licensing arrangement with American Standard whereby Safety Tubs sold its products branded as American Standard. This arrangement had been very successful for both parties and American Standard determined that a full acquisition of Safety Tubs fit perfectly into its strategic vision.
With multiple offers already on the table, Sun Capital and American Standard worked expeditiously to put forward a structure that would reward Safety Tubs for its past performance, and incentivize Shareholders to continue to innovate and grow into the future. After some quick negotiating on both sides, an exclusivity agreement was signed at the beginning of June, 2010. With the exclusivity agreement in place, Sun Capital, American Standard, and their advisors attacked the due diligence phase of the process. A purchase agreement was presented within three weeks, and the transaction was completed 50 days after the exclusivity agreement was signed. With the acquisition of Safety Tubs, American Standard obtained immediate access to one of the fastest growing bathroom product markets in the United States, and an immediate additional growth platform.

Challenges
When Safety Tubs began contemplating a transaction, the Shareholders knew that they needed a short term solution to meet their working capital needs as they grew, as well as a way to expand their distribution network and market penetration. Having grown at a CAGR of 44% from 2006 through 2009 during one of the worst economic environments in the history of the U.S., there were no shortages of potential debt providers or equity investors. The challenge was to find the right partner, and to decide whether to focus only on solving the short-term financing needs or to come up with a comprehensive long-term solution.

With virtually unlimited options available, Safety Tubs weighed the options of giving up control of a quickly growing company, or satisfying their short-term needs and focusing on organic growth. This choice triggered much internal debate, however, it was finally settled when American Standard decided to add Safety Tubs’ products to their line-up. It was determined that the current growth trajectory could be amplified with the full support of the American Standard and Sun Capital team, and this appealed to all of the stakeholders at Safety Tubs.
Once both parties agreed on terms, the diligence and closing process proceeded fairly smoothly. There were the bumps in the road typical to all deals: obtaining a final EBITDA number, agreeing on a normalized working capital number, and agreeing on reps and warranties, but none of these derailed the process. Fifty days after the initial letter of intent was signed, the transaction was closed and Safety Tubs was a part of the American Standards Brand family.

Benefits
The Safety Tubs acquisition was a classic build-verses-buy decision for American Standard Brand. American Standard and Sun Capital decided that they needed to enter the walk-in bath tub business, and how they were going to enter the market was imperative to their immediate success. Safety Tubs provided an immediate and material market entry point. With universally recognized superior products, especially in acrylic walk-in tubs, Safety Tubs allowed American Standard to enter the market knowing that the quality of their product would complement their existing bathroom line-up.

For the Safety Tubs shareholders, the transaction allowed them to tap into the vast resources and distribution channels that American Standard maintains to grow and add to their existing product line. In addition to the consideration at closing, the contract provides the Safety Tubs shareholders are highly incentivized to exceed their initial internal projection for sales and gross margins. This aligns the interests of both parties to fully utilize the distribution channels that are available to them at American Standard. The entire management team, who have demonstrated what they can do with just ideas and hard work, will now be able to further refine their already market-leading manufacturing processes and product development. With the operational backing of American Standard and the financial backing of Sun Capital, these talents can be further focused and refined to procure even more innovative products and processes.

By adding an immediately accretive product line to the existing products, American Standard gains instant access to the walk-in bathtub market, and further establishes themselves as a full-service provider of bathroom solutions. American Standard recognized that the walk-in bathtub market was positioned to continue its strong growth well into the future. They did not have time to hesitate and needed a high-quality product that would allow them to capture immediate market share. This transaction allowed them to accomplish all of their goals as well as bring in a highly-talented management team that was well versed in cutting edge product design and development.

  • 2010