CHB Capital Partners

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Fall 2004

The days may be getting shorter as fall approaches but our days at CHB seem to be stretching out...

In November, we will be opening an office in Atlanta, Georgia. Grant Clayton and Sean McClenaghan are relocating to Atlanta to manage the office. Sean won the coin-toss for the corner office and Grant, fresh from watching the summer Olympics, has filed an official protest. They will be joined by Steve Greene, who worked with CHB for three years prior to attending Harvard Business School, and by Amy Mulkey, who comes to CHB with two years experience with McKinsey & Company’s Atlanta office.

Back in Denver, Kyle McNeal left CHB in May after three-years to relocate to Hong Kong and help one of our portfolio companies, HiRel Systems, start up its manufacturing operations in China. In July, we hired David Anderson as CFO to improve LP reporting and address the infrastructure requirements of two offices.

We had a first close of $32 million on CHB Capital Partners III in May, comprised primarily of existing investors along with a lead institutional investor. We are late in discussions with a number of additional institutional investors and expect a second close in December. We are targeting $100 million, in aggregate.

In September, we completed our first investment from our third fund, a $9.5 million investment in Micro Dynamics Corporation. Headquartered in Eden Prairie, MN, Micro Dynamics is a manufacturer of complex circuit board assemblies for original equipment manufacturers in the military/aerospace, industrial, computer, communications and medical industries. This investment fits well with our strategy of providing capital to smaller middle market companies for ownership transition and growth in partnership with successful management teams.

Believe it or not, the forecast this week calls for snow, signaling the start of ski season. This season will be different from previous years for us as we recently completed the sale of skiwear company Spyder Active Sports to Apax Partners. Since CHB’s investment in September of 1997, Spyder has made extraordinary progress, growing revenue from approximately $10 million to over $85 million. With the sale of Spyder, CHB Capital Partners I is fully realized, with a gross fund IRR of 55%.

HiRel recently signed a definitive agreement to acquire a magnetics’ manufacturer located in the Pacific Northwest. The acquisition will add several new customers and expand HiRel’s presence into two new industries and onto the west coast. Pro Forma for the acquisition, HiRel will grow revenues by over 50% while more than doubling EBITDA in 2004.

After a record revenue year in 2003, Alternative Technology continues to outperform the overall IT market and is on pace for sales growth of over 30% in 2004. CT Systems (formerly Cable-Tech) enjoyed strong growth in the first six months of 2004. However, we expect this growth to slow through the remainder of 2004 as several large projects have started off more slowly than expected.

We encourage you to call us with interesting investment opportunities within the closely held and family owned business market. We look for transactions where we can invest equity capital in established companies with $10 million or more in revenue. Should you call, we guarantee you a thoughtful and timely response.

Tad Kelly, John Flanigan, Blake Morris, Grant Clayton, Sean McClenaghan, Steve Greene, Frederick Antwi, Amy Mulkey, David Anderson & Andrea Kasper

511 Sixteenth Street, Suite 600 Denver, CO 80202
Telephone: (303) 571-0100 Facsimile: (303) 571-0114