Alaris Equity adds three investments, raises payout 9%

Executive Summary

• Alaris Equity Partners Income Trust announced a 9% increase in its quarterly distribution to 37 cents per unit (annualized $1.48), supported by a payout ratio remaining below the 65-70% target.
• The trust completed three new investments totaling $52.7 million (U.S.), including a $27.0 million initial investment in McCoy Roofing Holdings LLC, a $20.5 million follow-on in Cresa LLC, and a $5.2 million follow-on in Carey Electric Contracting Inc.
• The new investments contribute an incremental $6.6 million (U.S.) to the trust's run rate partner distributions, driving 4.3% growth in the distribution rate.

Key Details

• Distribution Increase:
  • Quarterly distribution increased by 9% to 37 cents per trust unit.
  • Annual distribution increased to $1.48 per unit.
  • Payout ratio remains below the target range of 65% to 70%.
• McCoy Roofing Holdings LLC Investment:
  • Total initial investment: $27.0 million (U.S.).
  • Structure: $19.0 million in preferred equity and $8.0 million in common equity.
  • Preferred equity yield: Initial annualized distribution of $2.7 million (14% pretax annualized yield).
  • Distribution adjustment: Adjusted annually based on the percent change in McCoy’s annual net revenue, subject to a 7% collar.
  • Future financing: Alaris agreed to finance up to an additional $32.0 million (U.S.) of preferred equity over two tranches if growth and profitability targets are met, with the same yield and rights.
  • Use of proceeds: Partial liquidity event for equity holders.
• Cresa LLC Follow-on Investment:
  • Additional investment: $20.5 million (U.S.).
  • Total investment in Cresa: $50.5 million (U.S.).
  • Impact on distribution: 69% increase in Cresa’s annualized distribution, rising to $7.1 million (U.S.) from $4.2 million (U.S.).
  • Use of proceeds: Financing a strategic acquisition for a recurring revenue portfolio and proprietary technology platform.
• Carey Electric Contracting Inc. Follow-on Investment:
  • Additional investment: $5.2 million (U.S.).
  • Preferred equity position increased to $14.5 million (U.S.).
  • Common equity position increased to $4.7 million (U.S.).
  • Impact on distribution: 16% increase in annualized distribution to $2.2 million (U.S.) from $1.9 million (U.S.).
  • Use of proceeds: Liquidity to a shareholder.
• Ohana Growth Partners LLC Update:
  • Ohana completed the acquisition of a Planet Fitness franchisee with 10 locations in Michigan and Wisconsin.
  • Acquisition was fully financed through Ohana’s balance sheet; Alaris provided support but no capital.
  • Ohana’s total club count is now 94 across multiple states.
  • Expected to significantly enhance the return profile of Alaris’s common equity ownership in Ohana.
• Other Portfolio Updates:
  • Edgewater Technical Associates LLC: Secured a significant multiyear government contract to accelerate revenue growth.
  • Fleet Advantage LLC: Awarded new contracts, diversifying revenue base and strengthening cash flow.
  • GWM Holdings Inc.: Facing headwinds from moderated customer spending and sector pressures; management focused on revenue capture and cost discipline.
  • Federal Management Partners LLC: On track with recovery plan, though progress temporarily impacted by government shutdown.
• Performance Metrics:
  • Since founding in 2004, Alaris has invested in 43 portfolio companies.
  • Provided over $2.9 billion in capital to partners.
  • Generated a 16% IRR from exited investments.
  • Returned over $800 million to unitholders through distributions and unit buybacks.

Notable Quotes

• "We are excited to welcome McCoy to our growing portfolio and honoured to be able to support the growth of our existing partners Cresa, Carey and Ohana," said Steve King, president and chief executive officer of Alaris.
• "We chose Alaris because of their proven track record of success and their unique approach that allows us to retain majority ownership while gaining a true partner to help us scale and grow -- without compromising our culture," said Landon Wrinkle and Lee McCoy, co-owners, McCoy Roofing.