3i sells Encon

3i has sold Encon, a specialist distributors of insulation products, to Wolseley, a provider of heating and plumbing supplies and a supplier of building materials, in a deal worth £140.5m.

3i acquired Encon with its management team led by CEO Douglas McKerracher, in late 1997 in an MBO valued at £35m.

At that time the group consisted of two principal businesses; the Encon distribution business and the Superglass insulation manufacturing business. In 2003 Encon contracted to sell Superglass to Knauf Insulation but the transaction was prohibited by the UK Competition Commission. Subsequently, Superglass was sold to NBGI Private Equity in August 2005 for £37.5m. The sale of the Encon distribution business (including its contracting business) for £140.5m brings combined sale proceeds to £178m and represents a complete exit from the group for 3i. 3i’s proceeds represent a money multiple of 5.8 times its original investment cost and an IRR of 30%.

During the life of the 8 year investment, 3i has taken an active role in the strategic direction of the business including appointing Jim Cooper as chairman of the board and Ken Beaty, 3i director, as a non executive director on the board.

Beaty commented: “Since we led the MBO of Encon in the late 1990s, the business has delivered consistent year on year growth. Increasing government legislation surrounding energy insulation has led to strong market demand in recent years and this is set to continue. This transaction allows 3i to realise the value created during the life of our investment, whilst allowing Encon to become part of an international organisation with extensive synergy opportunities. We are delighted with the fantastic return we have made on this investment and wish Douglas and his team all the best for the future success of the business.”

Encon, based in Wetherby, West Yorkshire, is a specialist insulation distributor in the UK, supplying insulation, dry wall and related products to the construction industry. Currently the business operates from 22 depots in 18 locations and has a turnover of £170m. The business has grown substantially in recent years, benefiting from market growth led by government legislation and increased demand for basic insulation products.