NBGI chases Fund II

NBGI Private Equity, a UK lower mid-market private equity firm, can let the numbers do the talking as it chases a £100m target for its second fund.

The firm announced today the flotation of Superglass, the UK’s second largest manufacturer of glass wool insulation, with a listing on the London Stock Exchange giving an enterprise value of about £135m. Having backed a £40m management buyout just under two years ago, NBGI’s realisation of its 50.9% stake in Superglass has generated a 10.7 times return and an IRR of 244%.

Yesterday, NBGI announced the £15m sale of UK retailer Mountain Warehouse to Arev, netting a six times return on its original investment. In total, the firm’s first fund, which raised €100m in 2000 when the business was founded, has made six exits with an IRR to date of 76% and a cumulative money multiple of 6.9 times.

Other exits from the fund include Nationwide Autocentres, a UK road safety measure and car servicing specialist, sold to Phoenix Equity Partners for £49m in February 2006 and generating more than 10 times its original cash investment; and Brambles Foods, sold to Duke Street Capital’s Food Partners, for £22m, making a return of 4.3 times and an IRR of 52%.

“We’ve exited the best part of half of the fund now and there are a lot of different positive stories,” said Lawrence Dean, an investment manager at the firm since last year, having been in the investment banking arm of NBGI Group since 2002.

“With Nationwide Autocentres, it was a long-hold business with commitment to a buy-and-build strategy, whereas Superglass was over a much shorter period and much more about calling the market right,” he said.

“There have been one or two deals where we have benefited from investing at the right time, like market recruitment business Walker Hamill, which was acquired in 2002 when that sector was at its bottom and we rode the cycle and when it turned up again, we sold it back to its management [for a 3.4 times multiple and IRR of 73%].”

Dean said that the original buyout of Superglass also came at an opportune time, with 3i having sold insulation group Encon to plumbing business Wolseley, which wasn’t interested in the Superglass manufacturing arm. An attempt to sell to Germany’s Knauf was blocked on anti-competition rules, providing a way in for NBGI.

“We bought into the idea of energy efficiency and could see a number of measures coming through, so we invested in the business and since then, production capacity has increased by 50% and we’ve also added 10% to the workforce,” said Dean.

Investec Growth & Acquisition Finance, which provided a £4m mezzanine loan in the original buyout (with £27m of debt coming from Clydesdale Bank and NBGI providing the remaining £9m in equity), said that its use of a £2.5m preferred equity strip helped NBGI improve cash on cash returns from 8.7 to 10.7 times.

Dean added that a flotation was always the preferred route, “having taken it out of another business and given it independence, they wanted to retain that going forward and management has kept a 30% stake”.

He couldn’t comment on the size of the recent first close for Fund II, but said that it would retain the strategy of its slightly smaller €100m fund, which is now fully invested and focused on providing add-on facilities for remaining investments. He added that, unlike mid-market rivals, the firm would not be taking advantage of current liquidity in the market and up-scaling its fund size.

Having taken on two new hires in the last several months, the firm is also focused on the “fertile hunting ground” of the North West of England, with Joseph Bergin of Octopus Asset Management joining last month to head up activities in a new office in Manchester.

With a number of mid-market players including 3i and Bridgepoint having moved away from a regional focus, and given NBGI’s debut fund track record, Dean and his colleagues should have little trouble reaching its target and are already looking at investment opportunities for the new partnership.

By Robert Venes