The L.S. Starrett Company Enters Into a Merger Agreement With MiddleGround Capital to Become Private Company
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Insights
The acquisition of The L.S. Starrett Company by MiddleGround Capital is a significant event that warrants a detailed financial analysis. The offer price of $16.19 per share is a substantial 63% premium over the closing stock price on the day before the announcement. This premium is indicative of MiddleGround's valuation of Starrett's underlying assets and future growth potential. It is also reflective of the acquiring entity's willingness to pay a premium to gain control and the confidence in operational synergies post-acquisition.
From a financial perspective, the premium paid is a critical factor in assessing the fairness of the offer to shareholders and the likelihood of the deal closing without competing bids. Shareholders are receiving an immediate liquidity event at a price that may reflect the company's intrinsic value more accurately than the current market price. This transaction will likely have a positive impact on the short-term liquidity for shareholders while potentially altering the long-term strategic direction of the company.
Examining the industry context, Starrett's transition to a private entity could be a strategic move to better position itself in the competitive manufacturing sector. The manufacturing industry is often capital-intensive with a need for continuous investment in technology and processes. As a private company, Starrett may benefit from MiddleGround's expertise in manufacturing, which could lead to enhanced operational efficiencies and product development.
It is important to consider the potential market implications of such a transaction. Privatization can afford Starrett greater agility and the ability to make decisions without the scrutiny of public shareholders, which might be beneficial in a rapidly evolving manufacturing landscape. However, the loss of public reporting could decrease transparency for industry stakeholders and market participants who track the performance and strategies of public manufacturing firms.
From a legal standpoint, this definitive merger agreement will be subject to regulatory approvals and customary closing conditions. The premium offered per share will also undergo scrutiny to ensure it meets fiduciary duties to shareholders. The legal process will involve due diligence to confirm that there are no outstanding liabilities that could affect the transaction's value. Additionally, the terms of the merger will be examined to ensure compliance with all applicable securities laws and regulations.
Given the nature of the acquisition, it is also important to consider any potential antitrust concerns, although such issues are less common in go-private transactions. The legal team will need to prepare for a smooth transition to private ownership, including the handling of any dissenting shareholders and navigating the complexities of changing the company's reporting and governance structure.
Starrett shareholders will receive
“We are pleased to reach this agreement with MiddleGround, which provides a meaningful premium cash value to our shareholders,” said Douglas A. Starrett, Chairman of the Board of Directors, Chief Executive Officer and President. “Following comprehensive outreach to potential parties, our Board of Directors determined that MiddleGround is the right partner for Starrett because of its deep knowledge within the manufacturing industry. As a private company, the Company will have additional financial and operational flexibility to continue providing industry-leading service and products to our customers across our markets and maintaining Starrett’s proud tradition among its employees, communities and other stakeholders.”
“MiddleGround is thrilled to be partnering with Starrett, a brand we have long admired, and a company that we have followed in the public markets for several years. Most of MiddleGround's Operations team gained familiarity with Starrett products over the course of their manufacturing careers, and we are excited about the opportunity to further position the company for its future on the front lines of innovation, advanced manufacturing and reshoring,” said John Stewart, Managing Partner of MiddleGround.
Transaction Details
The proposed transaction has been approved by the Starrett Board of Directors. MiddleGround intends to fund the transaction with a combination of cash from MiddleGround Partners III, L.P. and committed financing, which is not subject to any contingency.
The transaction is expected to close in mid-2024, subject to the requisite approval by Starrett’s shareholders and other conditions to closing.
Following completion of the transaction, Starrett will become a wholly owned subsidiary of MiddleGround and Starrett’s Class A common stock will no longer be listed on any public market.
Advisors
Lincoln International LLC is serving as lead financial advisor to Starrett and Ropes & Gray LLP is serving as legal counsel to Starrett.
William Blair & Company L.L.C. is serving as exclusive financial advisor to MiddleGround in connection with the acquisition and debt financing of Starrett and Dechert LLP is serving as legal counsel to MiddleGround.
ABOUT THE L.S. STARRETT COMPANY
Founded in 1880 by Laroy S. Starrett and incorporated in 1929, The L.S. Starrett Company is a leading manufacturer of high-end precision tools, cutting equipment, and metrology systems, and is engaged in the business of manufacturing over 5,000 different products for industrial, professional and consumer markets. The Company has a long history of global manufacturing experience and currently operates four major global manufacturing plants. All subsidiaries principally serve the global manufacturing industrial base with concentration in the metalworking, construction, machinery, equipment, aerospace and automotive markets. The Company offers its broad array of measuring and cutting products to the market through multiple channels of distribution throughout the world. Starrett® is brand recognized around the world for precision, quality and innovation. For more information, please visit: https://www.starrett.com/.
ABOUT MIDDLEGROUND
MiddleGround Capital is a private equity firm based in
Additional Information and Where to Find It
This communication relates to the proposed acquisition of Starrett by MiddleGround. This communication does not constitute a solicitation of any vote or approval. In connection with the proposed transaction, Starrett plans to file with the
BEFORE MAKING ANY VOTING DECISION, STARRETT’S SHAREHOLDERS ARE URGED TO READ THE PROXY STATEMENT IN ITS ENTIRETY WHEN IT BECOMES AVAILABLE AND ANY OTHER DOCUMENTS FILED BY STARRETT WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION OR INCORPORATED BY REFERENCE THEREIN BEFORE MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE PROPOSED TRANSACTION BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND THE PARTIES TO THE PROPOSED TRANSACTION.
Any vote in respect of resolutions to be proposed at a Starrett shareholder meeting to approve the proposed transaction or related matters, or other responses in relation to the proposed transaction, should be made only on the basis of the information contained in Starrett’s proxy statement. Shareholders may obtain a free copy of the proxy statement and other documents Starrett files with the SEC (when available) through the website maintained by the SEC at www.sec.gov. Starrett makes available free of charge on its investor relations website at www.starrett.com copies of materials it files with, or furnishes to, the SEC.
The proposed transaction will be implemented solely pursuant to the Agreement and Plan of Merger, by and among Starrett, Unicornfish Corp. and Uhu Inc., dated as of March 8, 2024 (the “Merger Agreement”), which contains the full terms and conditions of the proposed transaction.
Participants in the Solicitation
Starrett and certain of its directors, executive officers and certain employees and other persons may be deemed to be participants in the solicitation of proxies from Starrett’s shareholders in connection with the proposed transaction. Security holders may obtain information regarding the names, affiliations and interests of Starrett’s directors and executive officers in Starrett’s definitive proxy statement on Schedule 14A for its 2023 Annual Meeting of Shareholders, which was filed with the SEC on September 29, 2023, in Starrett’s Current Report on Form 8-K filed with the SEC on November 8, 2023 and in Starrett’s Current Report on Form 8-K filed with the SEC on January 5, 2024. Additional information concerning the interests of Starrett’s participants in the solicitation, which may, in some cases, be different than those of Starrett’s shareholders generally, will be set forth in Starrett’s proxy statement relating to the proposed transaction when it is filed with the SEC and other materials that may be filed with the SEC in connection with the proposed transaction when they become available. These documents (when available) may be obtained free of charge from the SEC’s website at www.sec.gov and the investor relations page of the Starrett’s website at www.starrett.com.
Cautionary Statement Regarding Forward Looking Statements
This communication includes forward-looking statements that involve substantial risks and uncertainties. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, our clinical results and other future conditions. The words “anticipate”, “believe”, “contemplate”, “continue”, “could”, “estimate”, “expect”, “forecast”, “goal”, “intend”, “may”, “plan”, “potential”, “predict”, “project”, “should”, “target”, “will”, “would”, or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements include, without limitation, statements regarding the proposed transaction; prospective performance, future plans, events, expectations, performance, objectives and opportunities and the outlook for Starrett’s business; the commercial success of Starrett’s products; the expected timing of the completion of the transaction; the ability to complete the transaction considering the various closing conditions; and the accuracy of any assumptions underlying any of the foregoing. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and are cautioned not to place undue reliance on these forward-looking statements. Actual results or events may differ materially from those currently anticipated due to a number of factors. Factors that could cause future results to differ materially from such expectations include, but are not limited to: uncertainties as to the timing of the merger; uncertainties as to how many of Starrett’s shareholders will vote their stock in favor of the transaction; the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement, including circumstances requiring a party to pay the other party a termination fee pursuant to the Merger Agreement; the ability of the parties to consummate the proposed transaction on a timely basis or at all; the satisfaction of the conditions precedent to the consummation of the proposed transaction, including the ability to secure regulatory approvals and shareholder approval on the terms expected, at all or in a timely manner; the effects of the transaction (or the announcement or pendency thereof) on relationships with associates, customers, manufacturers, suppliers, employees (including the risks relating to the ability to retain or hire key personnel), other business partners or governmental entities; transaction costs; the risk that the merger will divert management’s attention from Starrett’s ongoing business operations or otherwise disrupts Starrett’s ongoing business operations; changes in Starrett’s businesses during the period between now and the closing; certain restrictions during the pendency of the proposed transaction that may impact Starrett’s ability to pursue certain business opportunities or strategic transactions; risks associated with litigation; and other factors as set forth in Starrett’s Annual Report on Form 10-K/A filed with the SEC on September 27, 2023 and Starrett’s Quarterly Reports on Form 10-Q filed with the SEC on February 16, 2024 and November 13, 2023, and other reports filed with the SEC. The forward-looking statements in this communication speak only as of the date of this communication. Starrett undertakes no obligation to update any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by applicable law. The information set forth herein speaks only as of the date hereof.
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The L.S. Starrett Company
John Tripp
Chief Financial Officer
978-249-3551
www.starrett.com
MiddleGround Capital
Doug Allen/Maya Hanowitz
646-722-6530
MiddleGround@dlpr.com
Source: The L.S. Starrett Company
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