Madison Heights, Mich. – Edgewater Capital Partners and other investors saw a 105% net IRR from the $54.3 million sale – now closed – of auto parts maker Tractech Holdings Inc. to diversified industrial manufacturer Eaton Corp.

Ryan Meany, principal at Edgewater said that the firm, as well as other investors, were pleased with the sale. “The investment provided substantial returns to all shareholders,” he said. “The IRR was pretty monstrous.”

Edgewater purchased a majority stake in Tractech in March 2003 alongside Peninsula Capital of Detroit and Tractech’s management from Delco Remy International Inc.

Tractech had been part of Edgewater’s portfolio for only a little over two years, and Meany said that his firm was not looking to sell. But the offer from Eaton changed the firm’s mind. “As investors, we’ve always got to be open to possible exits,” he said.

Edgewater retained investment bank WY Campbell & Co. of Detroit to advise it on the transaction.

Meany credited Tractech’s management team for much of the company’s success, saying they took the initiative to grab market share and speed product development, a particular focus. Much of the development was in existing markets, but the company also worked to build up its aftermarket segment further, he said.

Based in Madison Heights, Mich., Tractech also has a facility in Sligo, Ireland. The company makes traction enhancing differentilas and centrifugal clutches for the automotive market. Selling both to original equipment and aftermarket manufacturers, the company’s products are used in military vehicles, agricultural equipment, and off-road vehicles. Tractech sells under several barnd names, including Detroit Locker and Detroit Truetrac.

Tractech had 2004 sales of $43 million and employs about 170 people.

Cleveland-based Edgewater made the investment out of its first fund, a 1998 $22 million pledge fund. With that fund tapped out, the firm is raising an $80 million second fund. The firm invests $3 million to $7 million in equity per deal to acquire companies that generate between $20 million and $50 million in sales.

DOW JONES LBO Wire – August 18, 2005

By Jonathan Matsey