Middle-market firms still optimistic.

• Author: Marshall, Jeffrey
• Position: PRIVATE EQUITY - Mason Wells inc.

All private equity firms are not equal, and the pall that has come over the "megadeal" end of the market since the sub-prime market meltdown is much less evident at smaller shops.

Bill Krugler, managing director of Mason Wells in Milwaukee, says his firm has "kept chugging along" and never fell afoul of the seizures in the collateralized loan obligation (CLO) market, which has pummeled debt from some of the largest transactions and caused a number to fall apart.

In recent months, "our prices were up, but they were much more rational and reasonable" than those witnessed at the high end of the market, Krugler says. "We continue to see deals and do deals. The pricing of that debt has gone up, and the amount of leverage is down," but his firm expects to experience few problems even if the economy slows further.

Mason Wells typically does transactions in the $50 million to $300 million range, which he describes as the lower end of the middle market; many involve private industrial companies, Krugler says. While asset-based lenders are currently in vogue, he says his firm has historically done "club deals" with three or four regional banks, mentioning Midwestern institutions like U.S. Bank Corp., Marshall & Illsley Corp. and KeyCorp.

Another Midwestern PE firm, TMB Industries of Chicago--which targets the same size range as Mason Wells--has successfully put together an ongoing specialty niche in buying industrial foundry companies. Its recent purchase of Prospect Foundry LLC, a provider of iron castings, was its third in the space in the past year.

Leverage ratios are still elevated after last year, when some were being done as high as 9 or 10 times EBITDA. Krugler says the average in his market was considerably...