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November 2009

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Market News of Note

One-on-One
Craig Dupper, Partner
Solis Capital Partners LLC

Q: Solis has portfolio companies ranging from software to shrimp, so it seems you're not sector-specific. What are some of Solis' investment criteria?

A: Our primary focus is on the entrepreneurs and business owners we partner with in transactions. An important part of our investment thesis is leveraging their industry expertise and management capabilities.

As generalists with fundamentals-based business philosophies, we target manufacturing, services and value-added distribution businesses in defensible market niches. We look for companies with $15 million to $150 million in revenue, a history of profitability and demonstrated ability to grow organically. We prefer fragmented industries with potential for accretive add-on acquisitions to supplement growth.

Q: Could you tell me about some of Solis' portfolio companies - why were they appealing, and are you considering exiting any in the near future?

A: While Solis is invested across various industries, there are some key themes that are consistent throughout the portfolio: strong, capable management teams, demonstrated ability to grow organically and niches that provide higher margin potential. These themes, along with conservative leverage, have made the portfolio resilient to broader economic conditions. As a result, we are expecting attractive exits or recapitalizations from at least two portfolio companies in the next 12 months.

Q: The way I heard about Solis was via an investor who said you exited a company this summer and the money hit his bank account with a nice return. I have to admit, I don't hear that story much, these days. How long did Solis own that company, and was the buyer a secondary financial firm, or a trade buyer?

A: Solis exited Temcor Inc. in early September after an 18 month investment period. The buyer was a "sponsored strategic" - CST Industries Inc. - which is owned by The Sterling Group out of Houston, Texas.

Temcor is in a unique niche, constructing clear-span covers, primarily aluminum domes, for petroleum, international bulk storage, water and wastewater, and architectural applications. Temcor experienced very robust growth even in difficult economic conditions.

Solis' decision to exit was based on favorable sale valuation, structure (a portion of consideration was equity in the acquiring . entity) and the fact that our operating partner in Temcor is managing the combined business operations of Temcor and CST Industries' dome division. The net investor return was 3.3x with an IRR of approximately 125%.

Q: Has your investor base changed much over the last year, and is Solis now looking to raise money?

A: Solis' investor "family" consists of family offices and high net worth individuals. This hasn't changed over the past year. We are in the early stages of raising a fund that will be anchored by our current family of investors and will also include institutions as well as new family offices and high net worth individuals.

Q: How reliant are you on financing from banks, and have you noticed increased flexibility in the lending market?

A: We typically utilize bank financing in transactions. However, we are very conservative with leverage, as we want our operating partners focusing on growth, not stressing about overly high debt service.

The banks appear to be increasingly interested in asset-based lending, but pricing has substantially increased relative to early to mid 2008 levels. Senior "stretch" or "air ball" financing currently is hard to come by and very expensive. In markets like this, we typically layer in our own mezzanine debt in addition to equity.

Q: I see that one criterion of investment is profitability. Is there any temptation to get into the distressed investing space now?

A: Solis does not invest in traditional turnarounds. However, given the overabundance of leverage and inflated purchase valuations from 2005-2008, we are now seeing some "good" companies with overleveraged balance sheets. We expect there might be opportunities among these companies.

Q: Are you looking to grow your portfolio companies now via add-on acquisitions, are you more focused on organic growth, or are you generally in a wait-and-see mentality?

A: Solis' fundamentals-based investment thesis relies on organic growth for generating a return. We view accretive acquisitions as icing on the cake, and pursue them where appropriate.

We are currently seeing attractive add-on opportunities in the freight-forwarding/logistics space, as small to medium-sized businesses do not have the scale to effectively compete in the softer economy.

Q: If there is a company you've recently grown via a bolt-on acquisition, could you talk about what industry that company operates within, how big the deal was, and where the target was based?

A: Earlier this year we closed a bolt-on acquisition of Western Fish Inc. by Certi-Fresh Foods Inc., our seafood processor. Western Fish, with fishing vessels off the coast of California and a processing facility in Baja, provides Certi-Fresh with direct sourcing capabilities that complement its core processing business. Western Fish was privately held, and terms of the transaction were not disclosed.

Q: I see three of the four portfolio companies have a base in California. Are you still seeing good opportunities in your home state, or are you looking further out, now?

A: Solis has a Western U.S. focus, but it is not restricted to this geography. We like to be within a relatively short traveling distance from our management teams, as our hands-on approach is most effective with consistent in-person interaction.

Given the concentration of quality businesses in the Western U.S., we don't expect to proactively widen our sourcing territory.

Q: Are there any trends you have noticed developing that you do not think are being covered in the media? As many firms are working to stabilize troubled portfolios, there seems to be minimal news coverage of what led to this situation in the first place, namely: overabundance of leverage, inflated asset prices, and fund incentive structures that didn't always put investors' interests first.

We are pleased that investors now are searching for fund managers that share Solis' investment philosophy which focuses on business fundamentals, alignment of incentives and hands-on value creation.

Interviewed by Carina Kellam, London, ckellam@factset.com (+44) 77.0267.4485


CST Industries has built an extensive portfolio of brands and products for critical storage requirements. The Temcor acquisition further strengthens CST’s overall position and ability to serve the industry.

About Solis Capital Partners, L.L.C.:

Solis Capital Partners (www.soliscapital.com), founded in 2002, is a disciplined and innovative private equity firm focused on the middle market. Solis favors service and manufacturing companies with enterprise values ranging from $10 to $100 million, with solid management, strong business fundamentals, market cycle resilience, a history of profitability and potential for organic growth.

February 2, 2009

Solis Capital Partners Sells Temcor, Inc.

Sale triples original investment in 18 months

NEWPORT BEACH, CA – February 2, 2009 – In a deal proving you can make money in tough times, Solis Capital Partners, LLC (Solis), a Southern California-based private equity firm, announces the sale of its portfolio company Temcor, Inc. (Temcor) to CST Industries, Inc. (CST).

The transaction generated a return of 3.3 times the original investment.

“We’re pleased to report this transaction to our investors,” said Dan Lubeck, Solis managing partner. “Temcor has a very good product, and in this choppy economic environment, returning more than three times investment in just 18 months is an achievement we can feel good about.”

Temcor has been building domes for nearly 40 years. Achievements include the aluminum dome built to house the famous Spruce Goose, currently a cruise terminal and event center in Long Beach, California; the South Pole Scientific Station, and the Shanghai Pudong Natatorium in Shanghai, China. Temcor is headquartered in Gardena, California.

The purchaser, CST, is a portfolio company of The Sterling Group, a global leader in the design, manufacture and installation of storage tanks and covers headquartered in Kansas City, Missouri. CST Industries has built an extensive portfolio of brands and products for critical storage requirements. The Temcor acquisition further strengthens CST’s overall position and ability to serve the industry.

“Temcor is recognized internationally as a leader in aluminum domes and specialty covers. Its engineering expertise, global selling network and world-class manufacturing operations are led by an experienced management team. Temcor is a strong fit with CST’s existing businesses,” said Brian Bauerbach, President and CEO of CST. “We look forward to working closely with Temcor’s management team to deliver the best storage and cover products and services to our customers worldwide.”

In 2007, Temcor won the State of Georgia’s Manufacturer of the Year award and the Georgia Department of Economic Development’s Exporter of the Year award.

“This positive result – good return for a good company – is a validation of our conservative investment disciplines and detailed oversight,” said Craig Dupper, a Solis partner.


About Solis Capital Partners, L.L.C.:

Solis Capital Partners (www.soliscapital.com), founded in 2002, is a disciplined and innovative private equity firm focused on the middle market. Solis favors service and manufacturing companies with enterprise values ranging from $10 to $100 million, with solid management, strong business fundamentals, market cycle resilience, a history of profitability and potential for organic growth.


Contact: Linda Ames, APR
Ames & Associates
949.300.2545
linda@amescommunications.com