Expansion Capital / MBO, November 2000 Background Sleepmaster
was considered a non-core asset (i.e an “orphan”) by its parent company,
a specialty chemical business based in the Netherlands. The MBO was
funded by a mix of equity (from Advent and management), mezzanine debt
invested by Advent |
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Investment rationale
Advent was attracted to the Sleepmaster investment opportunity for the
following reasons:
- Genuine reason for sale by international owner;
- Strong CEO candidate already in the business;
- Strong cash flow generative business providing capability to leverage;
- Major expenditure on plant had already been undertaken; and
- Attractive opportunities for organic growth.
Advent’s role
The following actions were taken by management and Advent to develop
Sleepmaster into a strategic asset ready for exit:
- immediate attention was paid to better management of all aspects
of working capital and reduction of debt; - additional capital expenditure was provided for automation;
- a growth strategy was agreed which encompassed brands, export
markets, broadening the customer base and broadening the product base; - the management team was strengthened;
- the Jason / Onkaparinga brands business was acquired; and
- a China strategy was agreed, which entailed establishing China as a
supply source and developing a small network of concept “Jason” retail
stores in China as a means of providing an international window for the
company’s brands.
Exit
An exit was achieved by way of a secondary buyout by a financial buyer in
December 2004. This generated a return for the MBO team of approximately
five times their initial investment as well as them maintaining their equity stake
in the new deal with the financial buyer. The structuring of the MBO was such
that the MBO team won disproportionately to Advent on exit, with Advent funds
invested achieving a return of four and a half times initial capital invested,
representing an IRR of 52% over four years.