Central Valley Fund Announces MBO Acquisition of Waterman Industries

Invests $5.0M In Mezzanine Debt & Equity

The Central Valley Fund (“Central Valley Fund” or “CVF”) has partnered with the current management of Waterman Industries (“Waterman”) to acquire the company. Waterman, based in California’s San Joaquin Valley, is a leading manufacturer of control gates, valves, and vents primarily used in wastewater treatment facilities and irrigation districts throughout the United States and abroad. The Central Valley Fund’s investment includes $5.0M of equity and mezzanine debt.

Waterman Industries, founded in 1912, is headquartered in Exeter, Calif., and has operations in Lubbock, Texas, and Nampa, Idaho. Waterman is one of the most recognized national brands in the water management equipment industry. It manufactures more than 100 variations of highly engineered irrigation gates and slides for municipal water authorities and industrial users and has pioneered the manufacturing of gates, valves, and vents for modern age irrigation canals and water systems during its more than 100-year history.

Waterman’s management team will continue to be led by CEO Ken Mikesell and CFO Mike Rogers, who has been leading the company’s daily operations since 2010.

“With the support of CVF, Waterman Industries will accelerate its strategy of expanding its geographic footprint and inventory of mission-critical products and services through both organic growth and new products,” said Ken Mikesell. “Waterman has a demonstrated record of growth and we will continue to improve its position as a valued partner to our customers and vendors. We are very excited about our partnership with CVF and fulfilling our shared vision for the next phase of growth for Waterman Industries.”

Brad Triebsch, Partner at CVF, said, “As a leading independent provider of industrial gates, valves, and fittings for water systems, Waterman has a strong reputation for technical expertise, customer service, and the broad product offerings required to serve a diverse set of end markets. The Company’s impressive record of growth and its strong management presented an attractive opportunity for investment. We look forward to working with Ken and Mike, their senior management team, and the entire Waterman organization to support the future growth of the company as a leading employer in Tulare County.”

ABOUT WATERMAN INDUSTRIES

Waterman Industries started from humble beginnings in 1912 when W.A. Waterman moved his sheet metal shop to Exeter, California. to better service new irrigation in the area. In 1953, Waterman Industries built its first cast-iron canal gates and shortly thereafter was fabricating larger and more complex radial and slide gates for use in the expanding federal water projects in the West.

In 2012, Waterman Industries celebrated one hundred years of quality service in water management. In that century, the world has changed, but Waterman Industries’ goals haven’t changed since W.A. Waterman first came to Exeter. Customers come first, and the company still prides itself on putting out a quality product to both domestic and international customers in both agricultural and wastewater applications. For more information, visit www.watermanusa.com

ABOUT CENTRAL VALLEY FUND

The Central Valley Fund was established in 2005 to finance later stage growth and buyouts through mezzanine and preferred equity investments. CVF has managed more than $175 million in capital commitments since its inception. The fund has offices in Davis and Fresno, California.

CVF is focused on making investments in California’s Central Valley and throughout the Western United States. For more information, visit www.centralvalleyfund.com.

MEDIA CONTACTS:

Ken Mikesell

President & CEO

Waterman Industries

Exeter, CA

Tel: 559-562-4000

Email: ken.mikesell@watermanusa.com

Brad Triebsch

Partner

The Central Valley Fund

Davis, CA

Tel: 530-757-7004 ext. 224

Email: btriebsch@centralvalleyfund.com

Spanish-Language Interviews:

José Blanco

Partner

The Central Valley Fund

Davis, CA

Tel: 530-757-7004 ext. 227

Email: jblanco@centralvalleyfund.com

Central Valley Fund closes $120M investment round

About nine years ago the Central Valley Fund took the first steps in developing a healthy capital acquisition ecosystem with its first fund. Now, with more than $175 million in committed and invested capital, it’s looking to build upon that success with the second fund, which recently closed at $120 million.

The Central Valley Fund — with offices in Davis and Fresno at the Lyles Center for Innovation and Entrepreneurship at Fresno State — raised its first round of funding in 2004 and started building its investment portfolio in 2005, with the California Public Employees’ Retirement System (CalPERS) as the lead investor.

The portfolio for the second fund has a strong focus on agricultural food processing, energy, and companies targeting the Hispanic market. Those are the three areas the fund’s partners have seen the most growth potential in the next five years.

“The Central Valley needs to take advantage of our strengths here and not try to emulate Silicon Valley. Our strengths are agriculture, the Hispanic market, and energy,” said Brad Triebsch, a Central Valley Fund principal. “If the next Google pops up in Chowchilla, then great, but that’s not what we’re here to do.”

Other areas of interest include manufacturing, distribution, and health care.

Triebsch was told nine years ago the Central Valley was not capable of producing investment-grade returns. However, after the money was put to work, the returns from the 12 investments of the first fund ranked in the top 5 percent in the nation in 2005.

“It showed Central Valley ventures are investment grade-worthy, not because they invented the latest gee-whiz gadget or created the new Google in Chowchilla, but our entrepreneurs have a dedicated work ethic you don’t see in other areas,” Triebsch said.

After the success of the first round, 98 percent of the investors returned to the table to invest in the second fund.

In addition to CalPERS, other investors include Rabobank, Union Bank, the Small Business Administration, and local businesses Central Valley Community Bank, United Security Bank, Bank of the Sierra, and Valley residents Pete Weber and Claude Laval.

The Valley has developed a respectable collection of angel groups and other early-stage founders, and the Central Valley Fund provides later-stage venture capital. However, the Valley lacks the missing gap between those two stages — a strong pool of Series A investors to provide the capital needed just before a company starts generating high profits, Triebsch said.

The fund bankrolled a management buyout for Fresno-based MuniServices, LLC, from then-owner MBIA, Inc., in the form of a loan and small exchange of equity to the fund.

“It wasn’t just a financial transaction, but a business relationship that worked out great for all of us,” said Mark Herman, president of MuniServices.

Not only was Herman a beneficiary of the first fund, but he also signed on as an investor in the second fund.

“We feel very close with them and we certainly believe in their mission,” Hermann said.

MuniServices was sold to Portfolio Recovery Associates, Inc. five years ago, but is still headquartered and operated in Fresno with Herman is serving as president.

Another transaction the fund was involved in five years ago was Madera-based fertilizer company Ultra Gro, LCC’s acquisition a company with the backing of the Central Valley Fund, along with some intangible assistance.

“They gave us the financing and they’ve been good at challenging us as managers,” said Craig Fourche, one of the partners of Ultra Gro.

Not only has the investor pool improved since the first fund in 2004, but local companies’ understanding of the capital acquisition process has also grown light-years, according to Triebsch.

“I remember the people of Modesto looking at me with a blank stare,” Triebsch recollects of one of the fund’s first investments in a Stanislaus County nut company.

About eight years later the firm was sold to a private equity group.

http://www.thebusinessjournal.com/news/banking-and-finance/5149-central-valley-fund-closes-120m-investment-round

Impact of decreased Government Expenditures: California and the Central Valley

The potential impact of spending cuts that will take effect if Congress and the President currently can’t agree on a plan to avoid is referred to as the balance of the so-called “fiscal cliff” remains a major obstacle to fortifying business confidence in 2013. The American Taxpayer Relief Act of 2012 (“ATRA”) was enacted on January 1, 2013, avoiding substantial increases in marginal tax rates for the majority of U.S. taxpayers, however, postponed undertaking any budget cuts related to sequestration.

If the legislation had not been passed the Congressional Budget Office (CBO) estimates that there would have been a $600B hit to the U.S. economy if political leaders do not act to curtail large tax increases and government program cuts, representing 3-4% of U.S. GDP. There is still the pending matter of substantial automatic federal program cuts across the board in sixty-days, at the end of February 2013, as part of negotiating the federal debt ceiling.

The California economy has shown evidence of recovery with unemployment dropping to 9.80%, down from 11.5% a year ago, and creating over half of the nation’s new jobs in 2012. The state’s economy is expected to end up with state GDP in excess of $2.1 trillion, over 13% of the U.S. this year. About 40% of sequestration impacts are all on state and local government programs coupled with the suspension of unemployment insurance, payroll taxes going up and the unclear possible result of changes in Obama Care healthcare funding.

Stephen S. Fuller, a George Mason University professor, projects that California could lose 135,209 jobs as a result of Department of Defense cuts and an additional 90,255 cuts in non-defense jobs. However, ATRA did preserve unemployment payments for 12 months more for 400,000 Californians that were slated to lose these benefits when the federal extension to 99 weeks of coverage expired at the end of 2012.

Officials in California are wary of such a scenario and have warned that job losses could cause the state to lose as much as $22.7 billion in gross state product or over 1% of the state’s GDP, and abating its economic recovery. Nationally, the CBO estimates a 0.5% contraction in GDP.

The Central Valley represents about 11-12% of the state’s economy and arguably represents California’s most vulnerable region in terms of the upcoming reduction in government spending. Last year, the federal government sent close to $12 billion to Fresno, Tulare, Kings, and Madera counties in the form of, among other things, Social Security payments, Medicare, food stamps, and unemployment insurance. In Fresno County, those government benefits accounted for about 23% of all personal income last year. In Tulare County, it was 24%; Madera County, 22%; and Kings County, 19%.

“The Valley is an interesting place because so many get support,” said David Schecter, a Fresno State political science professor. But cutting any of those benefits — and Schecter included farm subsidies, mortgage interest deductions, and other popular government programs that also benefit the Valley — will be “messy,” he said.

A recent announcement by the monthly survey conducted for the San Joaquin Valley Business Conditions Index highlights that looking ahead six months, economic optimism, captured by the business confidence index, advanced to a very weak 39.8 from 36.1. A positive level of business confidence is an index reading of 50 and above. Uncertainty surrounding the fiscal cliff and healthcare reform continues to lower business confidence for Valley entrepreneurs.