Duke Street Capital has acquired Deloro Stellite, a UK-based group of engineering businesses, for €165m. The vendor, Vision Capital is a secondary private equity player backed by Goldman Sachs. Vision Capital had itself acquired Deloro Stellite when it bought the Morgan Grenfell Private Equity (MGPE) portfolio from Deutsche Bank in February 2003.
The company produces proprietary metal alloys from cobalt and nickel that are used in a wide variety of situations calling for extremely hardwearing materials. The group has a blue-chip client base that includes Siemens, Rolls-Royce, Ferrari, Ducati, Alstom, GE and Tetra Pak among others. For the year to December 2005 the company had revenues of more than US$200m.
Morgan Grenfell Development Capital acquired the company at the end of 1997 from Thermadyne Holdings for US$96m, consisting of US$88.5m in cash and the assumption of US$7.5m in liabilities.
In January 2002, it was put up for sale and was on the cusp of being acquired by another buyout firm when it became embroiled in a US class action lawsuit over damages caused by potentially toxic fumes in a legacy business that it had sold to a company that had subsequently filed for Chapter 11.
After this stymied the sale, MGPE itself started to implode and was later bought by Deutsche Bank. When Vision acquired the Deutsche portfolio it concentrated on the legal, insurance and environmental liabilities of the company, recruiting Mark Aldridge to run the business. Aldridge provided the link to Duke Street, where he had previously worked as a retained originator.
John Harper, the Duke Street partner responsible for the deal explains what it found attractive in a risky business, which falls outside the company’s usual sector focus. “We had been tracking the business for a couple of years, so we did know it well and obviously had a connection with Mark,” says Harper. “It has a wide range of end-user markets, many of which are growing quite rapidly, and it has few direct competitors. Because of the complexity of the manufacturing process, the barriers to entry are high, so we saw it as a strong defensive play.”
On the upside, Harper said that Duke Street had identified several acquisition targets, pointing out that this was a core part of the buyout firm’s value creation strategy. The group has also appointed operating partner and material scientist Richard Stephenson to the board.
“There are several angles that we saw with this business,” says Harper. “We had the connection through Mark, we liked the market position, and there is a clear opportunity to do a buy-and-build. The slightly troubled past also scared quite a few competitors off.”
The remaining businesses in the Morgan Grenfell portfolio that was bought by Vision include Abrasive Technologies Holding, which manufactures abrasive precision grinding wheels; AB Cerbo Group, a Nordic manufacturer of pharmaceuticals, food and industrial packaging; and Shearings Group, a UK-based coach holiday group.
Debt for the deal was structured and arranged on a 50/50 basis by existing bankers Royal Bank of Scotland and Calyon. Clifford Chance was legal adviser to DSC. Due diligence was provided by LEK on the market, KPMG financial, Aon insurance and ERM environmental.