LBO Firm Borrows the Merger Technique to Expand a Business: The Transaction Turns a Portfolio Company Into A Leading Player in Audiovisual Services

Private equity firms continue to devise innovative deal structures as the field endlessly evolves and financing challenges mount. In one of the more novel formats executed recently, a veteran financial buyer steered a portfolio company into a straight-up merger, acting much the way a strategic buyer would. A rarity in the private equity world, the transaction created a major player in audiovisual services – a highly fragmented market with solid growth in which mass is an increasingly important competitive attribute. The company emerging from the deal is AVW/TELAV, cobbled together by the merger of TELAV Inc., which was controlled by Boston-based Berkshire Partners, and AVW Audio Visual Inc., an operating unit of privately owned Freeman Cos., a leading producer of trade shows, conventions, and other large meetings. With revenues of more than $185 million and offices in 35 cities in the U.S. and Canada, the newly formed company rents audio and visual equipment, supplies technicians to run it, operates corporate meeting facilities on a contract basis, and helps run shows and conferences for a business-dominated customer base. Ross M. Jones, a managing director at Berkshire Partners, says that the deal resulted from his firm’s efforts to expand Canadian-based TELAV, which came into its fold in 1999. Berkshire, he says, approached Dallas-based Freeman about buying a majority interest in AVW, which was considered a non-core operation. But as the talks advanced, Jones states, “the opportunity was so compelling that at the end of the day, nobody wanted cash.” “So it took shape as a kind of equal merger,” Jones says. “We took out a little bit of cash so we could lock in a good return on our investment.” Size rose in importance as a competitive factor because a bigger company was needed to capitalize on the market’s growth – “in the high single digits,” according to Jones – and keep pace with evolving technology and customer demands. Drivers of growth include the geographic spread of corporate and exposition customers, greater use of audiovisual systems for remote locations, increased utilization of teleconferencing and videoconferencing by businesses to reduce travel time, and the tendency of many companies to hold annual meetings in different cities. “It’s a healthy growth business,” Jones comments. “There are always new technologies that people want to employ in terms of having very effective presentations and capabilities for conferences and corporate meetings.” Although the technology changes are not rapid, they “move enough” so that a bigger supplier is needed to keep abreast of the innovations and display the experience that wins the confidence of business customers. “We have an ample inventory of equipment for whatever the customer needs,” Jones notes. “The network covers all of North America. It’s very nice for the customers to work with one company and have all the solutions in place.” The combined AVW/TELAV also offers “continuity” for companies that hold meetings in a variety of cities or that like to relocate their annual meetings on a regular basis. “The same company can provide quality solutions every year,” he says.