Buyout Realisation of the Year – IPO

NBGI Private Equity (NBGI) sold its first fund’s 50.9% stake in Superglass as part of the company’s IPO on the London Stock Exchange last July, giving the UK’s second largest manufacturer of glass wool insulation an enterprise value at that time of approximately £135m.

NBGI achieved a 10.7x return on its original investment, which had been made less than two years before the IPO, with a recorded IRR of 244% a year. This was the sixth exit from NBGI’s first fund, with an IRR on exited investments to that date of 76% per annum, and a cumulative money multiple of 6.9x.

“Superglass was a spectacular investment for us. 2007 was a very good year for the fund – we made four exits during the year,” says Richard Morley, director at NBGI in London.

“The return was partly based on a very good investment assessment we had made at the time,” says Morley. “Superglass had very good potential and that was borne out in our two years of ownership.”

Morely says that the success generated by Superglass was based on the fund’s financial backing of management allowing it to invest in more infrastructure to meet increased demand (the workforce was increased by 10%) and to operate independently as opposed to being a subsidiary company, which it had been under the ownership of Encon.

The timing of the IPO arrived earlier than NBGI had originally envisaged from the outset of its investment in Superglass. “We thought the business had developed very quickly under our ownership,” says Morley. “But it operated very well as an independent.”

The listing on LSE was executed with the assistance of IPO sponsor Brewin Dolphin.

At the IPO, the only other equity interest in the company was held by South African bank Investec that held equity warrants as part of its mezzanine position in Superglass’ capital structure. Investec realised its interest in the company at the same time as NBGI.

NBGI led a £40m buyout of Superglass in August 2005. Increased demand for the company’s products, which are mainly used to insulate residential buildings, had helped to generate substantial growth in sales and profits between the buyout and the lead-up to the IPO. Investment in plants during NBGI’s ownership had expanded production capacity by 50% to 60,000 tonnes a year.

Superglass operates in a growth market, with environmental concerns and government-led initiatives, such as the Energy Efficiency Commitment and the forthcoming Carbon Emission Reduction Target, both of which influenced increased demand for insulation materials.