Successful $190 Million Recapitalization of JDC Power Systems

Founded in 2000 in Armonk, NY, JDC Power Systems (“JDC” or the “Company”) specializes in mission-critical power distribution and control solutions for data centers, providing comprehensive technical services.

JDC engaged Carl Marks Securities LLC (“CMS”) in October 2022. The Company, comprising five entities, sought to sell its three core businesses while separating the other two. Despite mediocre financial performance in 2022, JDC rebounded in 2023 with an over 125% increase in revenue and 300% increase in EBITDA.

CMS launched a broad process in June 2023, targeting over 300 potential buyers. The strategy focused on underwriting the purchase price on 2023 EBITDA, proceeding only with IOIs reflecting this approach. After selecting Madison River Capital (“MRC”)  as the partner, JDC’s performance continued to improve, driven by increased power demand from AI developments.

Leveraging JDC’s outperformance of 2022, CMS successfully negotiated an increase in the purchase price. The $190 million recapitalization with MRC closed successfully in June 2024, marking a significant achievement in JDC’s growth trajectory and demonstrating CMS’s effective deal execution.

The deal faced significant challenges, primarily revolving around JDC’s growth story and customer concentration. Many private equity firms were initially hesitant due to the Company’s financial performance downturn in 2022. Additionally, JDC’s top two customers, a global tech giant and an international colocation company, accounted for over 90% of the Company’s revenue, raising concerns among potential buyers.

To overcome these obstacles, the deal team leveraged JDC’s future cash flow projections. The Company had secured substantial non-cancellable backlogs, promising a considerable pre-tax profit over the next three years. This strategy demonstrated the management team’s capability and the Company’s strong market position.

The CMS team, displaying remarkable perseverance, negotiated tirelessly to ensure fair compensation for JDC’s owners. Their efforts resulted in a price increase and additional profits interests with favorable tax benefits, on top of a management incentive plan.

Another major challenge was negotiating the net working capital target, complicated by the nature of the business, which caused large monthly fluctuations. The CMS team invested considerable time in securing terms favorable to the seller.

Through multiple exclusivity extensions and hundreds of phone calls, the deal team’s creativity and resourcefulness ultimately led to a successful closing, overcoming all obstacles.

CMS significantly repositioned JDC in the market, enhancing its value proposition. CMS ensured a higher market valuation by highlighting JDC’s unique role in the data center industry rather than branding it merely as a switchgear component distributor.

The deal brought substantial benefits to key stakeholders. Founders Joe Mastromonaco and Rick Corbin, after 24 years of dedication, were able to take significant chips off the table, realizing considerable cash proceeds while retaining over 10% ownership in the business. This balanced outcome rewarded their long-term commitment while keeping them invested in the Company’s future success.

The partnership with MRC opened new avenues for JDC to grow. Despite being a first-fund entity, MRC’s strong ties to the data center industry, particularly through Tony James, Blackstone’s former Executive Vice Chairman, promised valuable connections. This association is expected to help JDC diversify its customer base and forge beneficial vendor relationships, positioning the Company for sustained growth and market expansion.

JDC might have missed these strategic opportunities for market repositioning and expansion if the deal had not been completed. The transaction not only secured the founders’ financial future but also set the stage for JDC’s continued growth and success in the evolving data center industry.