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Tag: investments

Pixelle to be acquired by Miami-based investment firm 

Spring Grove-based Pixelle Specialty Solutions Holding LLC announced Monday that it has signed an agreement to be acquired by an affiliate of H.I.G. Capital, a leading global alternative investment firm with $48 billion of equity capital under management. 

Pixelle’s website describes the company as “the largest and fastest growing manufacturer of specialty papers in North America.” H.I.G. Capital is headquartered in Miami. 

A portfolio business of the private investment firm Lindsay Goldberg, Pixelle was formed in 2018. It operates mills in Spring Grove; Chillicothe, Ohio; Jay, Maine; and Stevens Point, Wisconsin, producing more than a million tons of paper each year. 

Timothy Hess, Pixelle’s CEO, said in a release, “Together with Lindsay Goldberg, Pixelle has developed a broad, innovative portfolio of industry leading brands across the specialty papers and sustainable packaging markets. In under four years, we have transformed Pixelle into the leading specialty-focused paper producer in North America through three strategic acquisitions and successful implementation of a continuous improvement program. We thank Lindsay Goldberg for their partnership and look forward to our next chapter with H.I.G. Capital.” 

Credit Suisse served as lead financial adviser to Pixelle on the transaction while Swaine & Moore LLP served as legal adviser. Credit Suisse and Macquarie Capital are providing financing. 

Subject to customary closing conditions, including regulatory approvals, the deal is expected to be completed in the second quarter of 2022. 

Government bonds: relevant or not? That is the question 

Aaron Stolpen

With Treasury yields firmly hovering near 2020’s all-time lows, the looming threat of inflation, and a Federal Reserve that recently began its long march toward policy normalization, investors may be wondering whether investing in bonds is still a wise choice.  

While the modest yields offered these days are unlikely to inspire the levels of enthusiasm they once did, bonds remain an important piece of a well-constructed investment portfolio.  

Any port in a storm 

Of the many benefits bonds provide in an investment portfolio, perhaps the most crucial is their stability.  

After a year and a half in which nearly ever asset’s performance chart can be described as “up and to the right,” it can be easy to forget that stocks do suffer losses from time to time.  

The occasional debt ceiling showdown notwithstanding, government bonds are effectively free from default risk. While changes in interest rates may cause temporary losses on the bonds in your portfolio, these losses are vastly less severe than in equities or other risk assets. In fact, since 1927, a portfolio of 10-year Treasury bonds has had an annual total return of -5% or worse only five times: In 1969, 1994, 1999, 2009, and 2013.  By contrast, there have been 80 times where the S&P 500 index of stocks has dropped by that much or more in a single day.  

Beyond simply making it tougher for some of us to sleep at night, the higher volatility that comes with an over-allocation to risky assets can create a major hurdle to the long-term success of an investment portfolio. Because returns do not compound linearly losses will hurt more than gains will help.  

The only free lunch 

Beyond simply exhibiting low historical volatility, fixed income such as bonds can reduce the risk profile of a portfolio through the benefits of diversification.  

Famously called “the only free lunch in investing,” diversification is a vital feature of a well-managed investment portfolio. Diversification is the principle that by combining investment assets not impacted by one another or investment assets that tend to react in opposite ways, the volatility of the resulting portfolio will be lower than the average risk of the portfolio parts.  

Don’t fear the reaper 

One objection we sometimes hear about keeping bonds in a portfolio is that the returns we have experienced have been the result of a 40-year decline in interest rates. The logic goes that this lowering interest trend is all-but-certain to reverse itself now that we have been pushed against the very lowest rates can go. However, neither economic theory nor data support this idea of returns resulting from declining interest rates. Interest change rates tend to be a wash throughout the life of a bond.  

There are some who believe they should avoid bonds for the time being, thinking that as interest rates begin to rise, the value of the bonds will decrease. But there is no reason to be overly concerned. Rather than causing crippling permanent losses to you as a bond investor, a period of rising interest rates would at worst delay some of the returns an investor may earn over time.  

By waiting to invest until after rates rise, however; investors are hoping they can predict the timing and path of future interest rates. Not only that, but also timing it so well they would make up any bond yields lost in the interim. The likelihood of being successful with that timing is slim and extremely unlikely, and not worth losing out on the bond earnings over the timing you may be avoiding bonds.  

Bonds help bring stability, support diversification and yield over time. It’s natural in such a low-interest rate environment to question the value of bonds in your investment portfolio, but concern about interest rates should not outweigh the importance of that stability and diversification in your investment portfolio.  

Aaron Stolpen, CFA®, Esq., is a senior portfolio manager at Domani Wealth. 

Midstate business investments prove profitable for PennSpring Capital

Following a successful turnaround on its first two businesses in the region, Lancaster-based investment firm PennSpring Capital looks to continue its focus on midstate investments with a new acquisition.

PennSpring announced on Tuesday that it completed the sale of its two Leola-based holdings, Swing Kingdom and Atlas Molding, to New Holland-based Country Lane Gazebos just 19 months after acquiring the pair of businesses.

The firm also closed on a deal to acquire a majority stake in Lancaster-based environmental services company EHC Associates.

Swing Kingdom, a manufacturer of playground equipment, and its sister company, Atlas Molding, which makes plastic components for playground equipment, were the first two local companies purchased by the investment firm, which previously focused on companies outside the state.

During its ownership of both companies, PennSpring helped Spring Kingdom grow its client base beyond its traditional relationship with playground dealers to include municipalities, said Lou Castelli, PennSpring managing partner.

The firm also invested in new equipment for Atlas Molding and added more staff to the warehouse floor, allowing the manufacturer to triple its input. Other changes to the company included professionalizing Atlas’ financial function and modernizing the company’s customer experience, said Castelli.

The changes at both Swing and Atlas tripled EBITDA between the two companies in 19 months, drawing in an interested buyer well before PennSpring had planned to sell.

“(Country Lane Gazebos) came to us, they were a customer of Atlas and they have many shared distributors and they saw our success firsthand,” said Castelli. “Usually, I would hire an investment banker and take it around to other private equity groups but that wasn’t necessary.”

Nate Eisenberg, Swing Kingdom COO, called PennSpring “an incredible steward of our organization,” noting that the firm tripled EBITDA without altering the company’s culture.

“Even at the point of sale they proved adept at uncovering the perfect buyer,” Eisenberg said in a statement. “Not only strategically, but Country Lane Gazebos is also a cultural fit for our Amish/English workforce.”

Similar to how Country Lane Gazebos reached out to PennSpring to purchase Swing Kingdom and Atlas Molding, PennSpring’s newest acquisition, EHC Associates, contacted the firm after seeing how it handled its tenure with Swing and Atlas.

“Everyone knows each other in this area,” said Castelli. “It’s a beautiful thing. This acquisition we just closed on, they came to us. They are a couple miles from Swing Kingdom, they know the people there. People are getting to know us.”

EHC offers environmental services such as demolition, asbestos abatement, air duct cleaning, lead paint abatement and mold removal, primarily to contractors. The firm, which employs 30 people, has a large market share in the region but seeks to expand its outreach to include services for smaller, residential clients.

“It’s the reverse of Swing Kingdom; we are already doing the big jobs but we want the small jobs,” said Castelli. “My role is going to be on the digital marketing and sales side. Sourcing more leads, more revenue, getting more interest from realtors and home owners.”

PennSpring and EHC completed the transaction last week, with PennSpring joining as both controller and owner. John Hartman, former majority owner and current president of EHC, said PennSpring was very thoughtful in its approach to the process.

“Their track record of value creation is unrivaled in our region,” Hartman said in a statement. “With PennSpring at our side, EHC is well-positioned for both immediate and sustained growth.”

Prior to investing in area businesses, PennSpring focused on acquisitions outside of the state. Other than EHC, PennSpring’s controlled investments include Securus Contact Systems in Portland, Oregon; PSST Seamless Data Solutions in Louisville, Kentucky; and Traffic Control Systems in South Hackensack, New Jersey.

Ffollowing his experiences with Swing, Atlas and EHC, Castelli is convinced that PennSpring’s future lies in investing in businesses throughout the midstate, adding that he was naive not to see the potential of businesses in the region sooner.

“I have even more conviction about local businesses than ever before,” he said. “We can do it all here. We are the only investors here. We won’t be the only ones here forever but there is a market here in itself and it’s exciting.”

Techcelerator event offers business boot camp for area entrepreneurs, startups

Ben Franklin Technology Partners of Central & Northern PA is once again hosting its Techcelerator event, a 10-week long series of sessions meant to give prospective entrepreneurs the tools to start their own business.

The State College- based investment service has offered a form of the Techcelerator program for nine years throughout its 32-county footprint.

As part of the program, participants work with area entrepreneurs, talk to experts in marketing, sales and finance and develop a pitch presentation for a chance at a $10,000 award.

A number of businesses that previously participated in the boot camp have also gone on to receive investments from Ben Franklin.

“The Techcelerator is an outstanding way for Ben Franklin Technology Partners (BFTP) to engage in our primary mission, which is to create opportunities for startups in Pennsylvania to access the human and financial capital they need,” said Andy Long, director of business development at BFTP.

Long said that the program highlights the organization’s ability to connect Pennsylvania’s technology startups with the management consulting services and critical business services they need to get off the ground.

“In some cases we’re also able to match funds from founders to help prolong their runway to being ‘bankable’ or attractive to other forms of second stage capital such as angel investment groups or venture capital funds,” he added.

The event will consist of two-hour group and one-hour individual sessions run weekly over the span of ten weeks, all held virtually.

Previous Techcelerators were held in person across BFTP’s service area. Long said the virtual nature of the fall event should allow it to reach more people in more parts of the region and allow for a different experience compared to previous events.

The event is at no cost to participants but applications close on Sept. 6 and space is limited. The event is planned to begin on Sept. 15 and last until Nov. 17.

Lancaster routes private investment to neighborhoods

Through a collaboration between a number of Lancaster nonprofits like the SoWe Collaborative and CAPital Construction, a condemned former laundromat will get a second life as a mixed-use space. PHOTO/IOANNIS PASHAKIS

A condemned former laundromat on the corner of Saint Joseph and New Dorwart streets in Lancaster’s Southwest neighborhood had been abandoned for two years.

But the building recently became one of many throughout the city to undergo upgrades to its façade through Lancaster’s Downtown Façade Improvement Program.

In addition, the building and its upstairs apartment have also been renovated under a different project by CAPital Construction, a workforce development initiative spearheaded by the city’s Community Action Partnership.

Finally, through the city’s SoWe Collaborative, a resident-led organization focused on revitalizing the city’s southwest neighborhood, an investor has agreed to help fund a local resident to open a small business on the first floor of the building once an interested party is found.

Where mostly public dollars once drove the city’s biggest developments, such as the Lancaster County Convention Center and the Clipper Baseball Stadium, multimillion dollar projects are now being completed by outside investors and the city has turned its attention to netting investors for smaller neighborhood projects.

It started with the city’s attempt to focus less on public investment and more on securing private-sector investors. Four years ago, the Lancaster City Alliance, working alongside the city, unveiled a plan to do just that.

The plan called on Lancaster to attract $1 billion in private investments over 15 years. In the first four years, private businesses have invested $800 million towards that goal.

Lancaster Mayor Danene Sorace attributes the infusion of dollars, in part, to the city government’s ability to create a supportive environment for private-sector growth.

“It is our ability to deliver the services a city needs as a foundation in an effective and efficient way related to public safety and infrastructure improvements,” Sorace said. “It’s the ability of the city to be an effective partner in supporting private investment.”

Private investment in the city has taken numerous forms, such as the 101NQ building at Lancaster Square. 101NQ, formerly known as the Bulova building, is set to house the headquarters of Lancaster technology company Cargas Systems, news publisher LNP Media Group, and a number of retail store fronts and residential spaces.

“When I compare Lancaster to neighboring cities they are already far ahead when it comes to their approach to private capital and a pragmatic understanding of how to continue to make the city better,” said Dave Martens, president and CFO of Zamagias Properties, a Pittsburgh real estate firm that purchased the Bulova building on 101 N. Queen St. in 2016.

But money is flowing outside the downtown as well, according to Marshall Snively, president of the Lancaster City Alliance, saying the private investments in neighborhoods total about $300 million so far.

“I think people even in the city would be surprised that we are seeing a lot of our growth occurring outside of the heart of downtown because of the scale overshadowing the projects occurring outside of downtown,” he said.

Projects in the city’s neighborhoods looks quite different from the large-scale projects in the downtown, according to Sorace.

Increasing the city’s housing stock is a priority for the city but Jake Thorsen, SoWe’s neighborhood director, said the nonprofit has also tried to encourage private investors to fund mixed-use buildings that can house small businesses.

“We want to make sure that the investors coming in realize the community’s needs and that we are pulling in investors with good track records or potentially turning neighbors into landlords or property owners,” Thorsen said.

Lancaster has become well known for the collaborative nature of its nonprofits, and the effort to grow its neighborhoods has been just as collaborative. As with the work involved in preparing the former laundromat for sale, renovating local neighborhoods to drum up interest from investors has been a group effort.

Challenges still await the city as it continues to try to encourage investors in every corner of Lancaster. Local organizations are worried about gentrifying neighborhoods where housing costs might come to exceed what existing residents can afford.

Organizations like the Lancaster Housing Opportunity Partnership are trying to head off that problem by buying and renovating blighted properties and selling them to first-time home owners whose earnings fall under a certain threshold.

‘Tens of millions’ of dollars to be invested into Turkey Hill Dairy

Turkey Hill Dairy’s Manor Township plant will be receiving a number of improvements through investments from the company’s new owners. PHOTO/PROVIDED

Turkey Hill Dairy’s new owners plan to make “tens of millions” of dollars in capital improvements to increase the company’s production.

Peak Rock Capital purchased the Manor Township, Lancaster County beverage and frozen treat giant for $215 million in May.

The Texas-based private equity firm said this month that it is already updating some of the manufacturing equipment in Turkey Hill’s plant, one of many planned investments at the site.

The plant, in Manor Township, is located on more than 72 acres along the Susquehanna River and is powered by 100 percent renewable energy.

Peak Rock Capital said in a statement that the investments will take the form of capacity expansion, investments into the latest manufacturing equipment, and facility renovations and enhancements.

Turkey Hill announced in March that it was officially selling its products in every state in the country except for Hawaii. The next step for the company is to increase the number of stores selling Turkey Hill brands. Peak Rock Capital’s new investment are designed do just that, according to John Cox, president of Turkey Hill Dairy.

“Our vision is to be a national brand and that will mean we will be sold in 70 to 80 percent of food outlets in the U.S.,” said Cox, noting that the company is currently in 50 percent of food outlets. “(Peak Rock Capital’s investment) is easily double the pace that we would have been on for a normal operating investment into the business.”

Cox said the new owner’s interests still align with the goals of Turkey Hill, which include growing the company’s capacity in order to sell to more businesses across the country and improving the technology Turkey Hill relies on to produce its ice creams and beverages.

Peak Rock declined to provide a timetable for its investments.

PennSpring focuses on midstate investments with new hire

PennSpring Capital has hired a former Lancaster County banking executive to help the investment firm form more partnerships with local businesses.

Tom Showers, former senior vice president at BB&T Bank, retired from his position last month and will be working with the firm to launch a new initiative that will invest in companies based in the midstate.

PennSpring was founded in 2018 and has since made investments in businesses in Portland, Oregon; Louisville, Kentucky; and Spokane, Washington. The company’s most recent deal with playground equipment manufacturer Swing Kingdom and plastic component manufacturer Atlas Molding, was PennSpring’s first swing at buying and growing a business near its base in Lancaster.

Showers has 38 years of experience in banking in Lancaster and Lebanon counties and plans to utilize his relationships in the area’s financial and accounting communities to find businesses interested in partnering with PennSpring.

“The initial process is for me to find those connections and introduce the PennSpring story, what PennSpring is about and how we can work together,” Showers said.

Acquiring both Swing Kingdom and Atlas Molding helped Lou Castelli, a managing partner at PennSpring, realize that the company didn’t need to go far to find the kind of businesses the firm wants to invest in.

Castelli told the journal in May that previous to the deal, PennSpring saw itself as geographically agnostic and that it focused on finding businesses in fragmented industries with room to grow. With the new initiative, PennSpring will be instead looking to keep its investments within an hour drive from Lancaster.

“We will always look at deals outside of this geography but we prefer and will pay more for deals in this geography,” he said. “We are ingrained in the community and we are located here.”

The firm generally invests in business around the $5 million to $40 million sales range, according to Showers. He said that during his career in local banks like Susquehanna Bank and National Penn Bank, most of his clients were businesses in that range.

“I am very familiar with the banking structure and the way banks approach things,” he said. “There is value in my experience on that end and my ability to put deals together from a financing perspective.”

 

Guest view: An “opportunity” to eliminate federal capital gains tax?

Sounds too good to be true, right? Over the past nine months, I have received calls from a number of my clients asking about a new investment opportunity being pitched to them. Whether it was a downtown York restaurant or an apartment complex in Baltimore, a primary draw of these investment opportunities was the potential tax savings. Many of these clients I would label “sophisticated investors,” so they are all well aware of various investment and tax-deferral strategies, such as 1031 like-kind exchanges. But permanent tax abatement? That almost seems too good to be true.

When President Trump signed tax reform into law in December 2017, he enacted this new tax incentive. At first, federal opportunity zones were widely overlooked as many other tax reform provisions such as the C Corporation rate reduction, the 20 percent qualified business income deduction and the $10,000 state and local tax deduction limit received national attention. As we moved into spring, however, attention turned to opportunity zones as investors began to realize just how good of an incentive they could be.

Opportunity zones can help stimulate economic and community redevelopment, but I’m a tax guy so I want to share why it makes sense from a tax standpoint. This is where I may lose some of you, but hey, the tax incentives are really what is going to drive this redevelopment forward.

There are three different tax scenarios at play with opportunity-zone investments: a tax deferral on capital gains tax, a partial permanent abatement of capital gains tax and a full abatement of capital gains tax.

Tax deferral

The tax deferral piece relates to the unrecognized capital gain on property (such as real estate, stocks or artwork) that a taxpayer disposes of and within 180 days reinvests into a qualified opportunity fund, similar to a 1031 like-kind exchange.

The taxpayer can now defer paying capital gains tax on this original investment until the earlier of: 1) the date of the disposal of the investment in the qualified opportunity fund, or 2) Dec. 31, 2026. One important difference with an opportunity-zone deferral compared to a 1031 exchange is that for opportunity zones, only the deferred gain must be reinvested, not the entire proceeds from the sale. This will allow investors to reserve some cash upon their disposition of the original investment for future taxes when the deferral period ends. This becomes important as we discuss the benefits of holding onto the qualified opportunity fund beyond the deferral period.

Partial tax abatement

There also is a potential partial permanent abatement of capital gains tax for the original investment that was sold. If the taxpayer holds onto the subsequent qualified opportunity fund for five years, 10 percent of the capital gain on the original non-qualified opportunity fund investment is abated. If held for seven years, a total of 15 percent of the capital gain is abated.

Since the deferral period ends on the earlier of the qualified opportunity fund disposal or Dec. 31, 2016, there is incentive to invest in these qualified opportunity funds now to take advantage of this partial abatement of capital gains.

Full tax abatement

Lastly, there is a 100 percent abatement of all capital gains tax associated with the qualified opportunity fund investment itself as long as the investment is held for more than 10 years. This is where the real tax savings can occur if the qualified opportunity fund is successful.

Let’s walk through a brief example to show how this all plays out:

• An investor sells a multi-unit residential rental property for $1 million. The investor realizes capital gains of $300,000. Within 180 days of the sale, the investor reinvests that $300,000 capital gain into a qualified opportunity fund, deferring capital gains tax. He keeps $700,000 of cash from the deal.

• The investor holds onto the qualified opportunity fund for 12 years, and then sells his share of the investment for $750,000.

• Prior to this, on Dec. 31, 2026, the investor recognized capital gains tax on $255,000 of capital gains from the original non-qualified opportunity fund investment. $45,000 (15 percent) of gain was permanently abated, since the taxpayer held onto the subsequent qualified opportunity fund investment for more than seven years.

• Lastly, since the investor held onto the qualified opportunity fund for more than 10 years, his $450,000 of capital gain is fully abated upon his sale of the qualified opportunity fund.

• In total, the investor was able to abate $495,000 of capital gains and enjoy a tax deferral along the way.

What have I been telling my clients about federal opportunity zones?

It is potentially one of the best tax incentives out there due to the combination of tax deferral and permanent tax savings, but as with all tax-planning strategies, do not let sound investment practice be overruled by tax incentives.

There will certainly be a number of qualified opportunity funds that do not pan out for investors, so careful analysis of a qualified opportunity fund’s objectives is key before investing. And beyond the financial and tax aspects of the federal opportunity zones, let’s hope these special investments really do spark the revitalization efforts in our surrounding communities that they are intended to do.

Michael J. Eby is a partner in the tax services group of RKL LLP in Harrisburg. He can be reached at [email protected].