Investment Opportunity
The skill crane industry is characterized by attractive per-unit economics and rapid growth. In 1996, the annual growth of the industry was estimated in excess of 20%, with industry revenues of approximately $240 million. With the three largest players in the industry possessing an aggregate market share of less than 25% and many other smaller players, significant opportunities existed to consolidate the fragmented industry.

Business Description
Rainbow manufactures and operates skill crane machines. The Company produces the highest quality skill crane machines which require very little maintenance. The Company is also one of the largest skill crane operators in the U.S. Skill cranes are “arcade-style” games where players pay $0.50 for the opportunity to utilize their skills in order to maneuver a computer-controlled claw device that retrieves stuffed animals – called “plush” – or other prizes inside of a glass enclosure. The payback period on the machines is 9 months.

Transaction Description
The Company was acquired in July 1997. The deal was structured with approximately $6 million of equity and $25 million of debt. The equity included co-investments by NationsBanc Capital Investors and Heller Financial.

The senior debt was structured as a $10 million senior term loan and a $14 million revolving facility provided by Heller. In addition, NationsBanc Capital Investors provided $7 million of subordinated debt. At closing, the revolving loan had approximately $8 million outstanding out of the $14 million available. This structure offered a great deal of flexibility because the revolver could be used to fund acquisitions and internal growth.