3i bags environmental consultancy

Private equity firm 3i has acquired a minority stake in SLR Holdings in a €126m (£100m), in a deal much coveted by mid-market private equity firms.

Environmental consultancy business SLR Holdings is well known to many buyout players as it carries out environmental due diligence for them on their portfolio acquisitions. A number of these groups put themselves forward as potential acquirers of SLR, in which fellow-private equity firm ISIS Equity Partners had held a minority stake since 2004.

“We have got to know SLR’s management over the last few years,” said Rupert Bell, who led the deal for 3i. “We began talking to them seriously in the middle of last year about an investment proposal and even though they were being courted by many mid-market private equity firms, we were able to build a proper relationship with unfettered access; as such it was effectively an off-market transaction,” he added.

3i paid £32.5m for a significant minority stake in the company, valuing the business at about £100m. Lloyds TSB Corporate Markets provided £29m of debt funding to support the deal, as well as an untapped facility to finance future acquisitions.

The exit generated returns in excess of 6x for ISIS. During ISIS’s investment period, SLR achieved impressive organic growth as well as making several acquisitions. In 2007, SLR acquired UK landscape and architecture planning firm Insite Environments, and Canadian-based environmental consultancy Seacore Environmental.

“We see SLR growing from a primarily UK-based business with a North American arm to an operator with a real network and presence in Asia,” said Bell.

SLR will pursue both organic growth and an acquisition strategy to build its presence in Continental Europe and Asia, with involvement in infrastructure projects in India viewed as a particular opportunity for the business.

“This is a market where the sky really is the limit,” said Bell. “The legislative and regulatory drivers for SLR’s services are gathering momentum very quickly.” An IPO is envisaged as the likely exit route in the medium term.

3i believes its unique international network and experience in the environmental consultancy space helped it to win the deal. The listed investor previously backed ERM, another environmental consultancy, before selling it to Bridgepoint in 2005 for US$535m.

In addition, the transaction was carried out by 3i’s growth capital team and its experience in minority investing was thought to have appealed to SLR’s management.

“We will contribute to SLR’s strategy and acquisitions pipeline but we recognise that we do not control the business. It is an employee-controlled business and that entrepreneurial spirit is central to their success,” said Bell.

Redditch-headquartered SLR generated Ebitda of £6.6m on revenues of £32.7m in the year to end-October 2007, up 47% and 36% respectively from 2006–07.

PricewaterhouseCoopers Corporate Finance and Travers Smith advised 3i, while Olswang worked for ISIS and Osborne Clarke acted for Lloyds TSB.