KPS to generate 5x on Waupaca Foundry sale

The sale, which is expected to close during the fourth quarter, will likely result in a 5x cash-on-cash realization for the firm, a source familiar with the transaction told Buyouts. Prior to the announcement of the sale, Waucapa had already generated $325 million in distributions for KPS, the turnaround shop that led the company through a pair of recapitalizations in 2013.

KPS, along with management and a co-investor, acquired the iron foundry from the European industrial conglomerate ThyssenKrupp for $226 million of cash in 2012. The firm completed the transaction through KPS Special Situations Fund III, which was netting a 21.9 percent internal rate of return and 1.9x investment multiple as of Dec. 31, according to the California Public Employees’ Retirement System.

Waupaca specializes in providing iron castings to the automotive, commercial vehicle, agriculture, construction and industrial markets sectors.

“It had been tucked away in a large German company that has interests all over the world,” KPS co-founder David Shapiro told Buyouts, noting that the North American foundry business was “a little sleepy, because it wasn’t getting a lot of tender loving care from the parent (company), which is what we like to see.”

That lack of “tender loving care” created opportunities for operational improvements spearheaded by KPS and Waupaca’s incumbent management team. “No one knows the iron foundry industry as well as (Waupaca CEO Gary Gigante) does,” Shapiro said.

The change in ownership led to operational changes to that reduced downtime in the production process and improved product quality. Waupaca also benefited from an increase in domestic auto production, which represents half of the company’s business, Shapiro said.

“The company also was able to win a significant amount of new business, which really helped on the revenue side as well,” he said.

The end result was a 43 percent improvement in EBITDA over KPS’s two-year ownership of the company, with employee headcount rising by 10 percent, Shapiro said.

Headcount likely would have grown even more had KPS held the company longer. The firm was considering expanding Waupaca’s footprint internationally through add-on acquisitions before it decided to sell the foundry.

“It just would have taken time. Any time you enter a new market…it takes time to bear fruit. It’s not what I call a quick pop,” Shapiro said. “Does it make sense to do that, or does it make sense to take the substantial return you have today and put it in the right hands?”

KPS closed its most recent private equity fund on $3.5 billion in 2013 after less than three months on the market, sister website peHUB reported. The firm has completed two transactions through the new fund, Shapiro told Buyouts.

The firm maintains offices in New York and Frankfurt, Germany. KPS has more than $6.1 billion of assets under management, according to its website.