News & Analysis

Sentinel to reacquire Canadian yarn company for $57m(2)

In the latest example of a private equity firm acquiring a Canadian income trust following a change to Canada's tax policy, Sentinel will pay $57 million to reacquire yarn company Spinrite.

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US private equity firm Sentinel Capital Partners will acquire Spinrite Income Fund, the largest producer and marketer of craft yarn in North America, in a $57 million (€39 million) cash transaction. The debt portion of the deal is $35 million.

The yarn company was originally acquired by Sentinel in early 2004 for approximately $80 million, according to public filings. Spinright became a publicly traded income fund in February 2005, with Sentinel retaining a minority interest.

Eric Bommer, partner at Sentinel, said the private equity firm’s minority stake and experience with the company made it the most logical party to take Spinrite private once again, in light of changing regulations in Canada.

“The Canadian government is basically taking away the tax advantage that the income trusts enjoyed,” Bommer told PEO. “There have been a number of take-private transactions in the income trust [market] and we expect to see many more.”

Bommer also said the investment is promising given the yarn industry’s projected growth. “It’s a more than 2,000-year old industry that has a lot of positive demographic trends,” he said. “The average knitter is a just over 50-year old woman and that demographic is one that is increasing and one that is projected to increase. So we think it’s a good market to be in.”

The deal is Sentinel’s fourth investment in the past few months; just days ago it purchased mobile dental service provider ReachOut Healthcare America.

“Each of these acquisitions conforms to our investment strategy and we have accomplished this during a highly tumultuous credit market environment,” David Lobel, Sentinel founder and managing partner, said in a statement. “We believe this reflects our proven experience in choppy markets and our ability to provide certainty to sellers.”

Sentinel’s strategy is to buy and build smaller, middle- market companies in North America in partnership with management. It typically targets the consumer, restaurant, franchising, manufacturing and service sectors.