Investment Opportunity
The conversion of service stations, which provide routine automotive maintenance and gasoline, to large-automated retail pumping stations that are thinly-staffed had created a unique opportunity for vending companies. In particular, air, water and vacuum services have increasingly become a standard product offering of all retail petroleum stations. While some oil companies offer these services without a fee, pay air, water and vacuum vending have increasingly become the standard in the United States and the United Kingdom. The pay air, water and vacuum vending businesses are characterized by attractive per-unit economics and rapid growth. In 1997, industry revenues were estimated at over $200 million. At that time, with the three largest players in the industry having an aggregate market share of less than 10%, there was a significant opportunity to consolidate the fragmented industry.

Business Description
AIR-serv is the world’s leading manufacturer and operator of air and vacuum vending machines. Aside from designing and manufacturing the machines, AIR-serv operates a large fleet of route trucks responsible for the service, repair and coin-collection of the Company’s air and vacuum machines through a nationwide network of both corporate-owned and dealer markets.

Transaction Description
The Company was acquired in July 1998. The deal was originally structured with approximately $3.4 million of equity and $8 million of debt. The equity included a co-investment by Churchill Capital.

The senior debt was structured as a $13 million revolving credit facility provided by Heller Financial. In addition, Churchill Capital provided $3.5 million of subordinated debt. At closing, the revolving loan had approximately $4.5 million outstanding out of the $13 million available. This structure offered great flexibility because the revolver offered the ability to fund acquisitions and internal growth.

Due to the rapid growth of AIR-serv, additional capital was added to the Company from 1998 to 2002 in the form of common equity, preferred stock, subordinated debt and senior debt. For example, the original $13 million revolving credit facility was eventually expanded to a $60 million credit facility consisting of a $20 million term loan and a $40 million revolving credit facility. Subordinated debt was increased from $3.5 million to $26.5 million. Additionally, $15 million of preferred equity was added in February 2001 by The Prudential Insurance Company.