In 1999, Kranson Industries, Inc. (“Kranson”) had sales of $310 million and market share of 2.5 times its nearest competitor. In the three years prior to CHS’ investment, Kranson had successfully acquired and integrated three companies, demonstrating its potential to lead a consolidation of the highly fragmented, rigid packaging distribution industry.

At Kranson, we saw an opportunity to back a proven management team at the intersection of two industries we knew well: distribution and packaging. We forecasted that Kranson would generate consistent, organic growth in a low growth but stable industry, and continue its consolidation of the fragmented rigid packaging distribution industry.

Simultaneous with closing, Kranson acquired Packaging Plus, the first of three add-on acquisitions under CHS’ ownership. The Packaging Plus acquisition was completely integrated into Kranson within 90 days of closing. Kranson ultimately achieved EBITDA from the acquired business that exceeded CHS’ and the company’s expectations.

During the difficult economic environment from 2000-2003, Kranson achieved positive growth in sales and profitability each year. Despite the company’s impressive organic growth, tight credit markets limited the company’s ability to finance acquisitions. During this period, CHS worked closely with the company to implement a number of planned management changes. In addition, Kranson generated high free cash flow during this period and substantially reduced debt.

In December 2003, the company completed the acquisition of Packaging West, a rigid packaging distributor based on the western United States. This acquisition was sourced by CHS on a proprietary basis through our contacts in the packaging industry. The integration of Packaging West produced substantial cost savings as Kranson immediately consolidated three of Packaging West’s five locations into existing Kranson facilities and eliminated nearly its entire corporate staff. Shortly after the Packaging West acquisition, Kranson completed the acquisition of another CHS sourced add-on, Smith Container. Again, Kranson financed the Smith Container acquisition entirely with senior bank debt, consolidated most of its warehouse facilities, and eliminated nearly all corporate expenses. In each of the three add-on acquisitions, Kranson achieved a pro forma valuation multiple of 4-5 times EBITDA.

Anticipating strength in the mergers and acquisitions market, CHS and the management team agreed in early 2004 to market Kranson for sale. CHS conducted a broad auction and by July, 2004 sold Kranson to a financial sponsor. The successful exit generated a 31% IRR and returned 3.7 times CHS’ invested capital.