The exit result on French battery producer Saft means that more than 18% of Doughty Hanson Fund IV commitments have been returned to investors on that transaction alone.
“Including our retained shareholding of 42.5%, the implied total return on Doughty Hanson’s investment has been 4.25x. We are very happy with that result and the way that Goldman Sachs ran the flotation,” said Steven Bone, the Doughty Hanson principal who worked on the deal.
A further payout may be made to investors in the event that the 15% over-allotment option is exercised. That will be decided over the course of the next 30 days. Doughty Hanson’s remaining stake is subject to a 90-day lock-up period.
Investors in Doughty IV will have received €308m from Saft in total, representing around 2.6 times their equity investment. Doughty Hanson has already returned €175m to investors through the repayment of debt following a recapitalisation of Saft in February. The gross IRR to date on the Saft investment is 122%.
The fund was capped at €1.6bn in January. Existing investors, aware of Saft’s strong performance, asked for the cap to maximise distributions. There has been a strong and sustainable improvement in the financial performance of Saft, with 2004 combined turnover up 5% to €586.9m and Ebitda up 35% to €105.5m. Saft’s new manufacturing facility will open in China next year.
Saft was acquired for a total of €410m in January 2004, in Doughty Hanson’s first private equity portfolio investment in France. The acquisition was financed through equity investment of €120m and €290m of debt. Based on the offer price of €26 achieved at the IPO, Saft now has a market capitalisation of €485.3m.
There have been four acquisitions from the fund to date, investing a total of €425m of equity. The other investee companies are Balta, a manufacturer of wall-to-wall carpets that was acquired from the founding family in August 2004; Tumi, a high-end luggage and business accessory brand acquired last November from the founding family and Oaktree Capital Management; and ATU Teile Unger, which KKR entered in August 2004.
Bone said that Doughty Hanson was pleased with the performance of other portfolio companies. “ATU is performing well in Germany and elsewhere. The aim is to open new branches and to continue growing the business in countries neighbouring Germany,” he said. Fund IV is 25% drawn down, with Doughty Hanson expecting 10 to 12 investee companies in total.
The flotation was pitched as a growth story, but with defensive elements. The €244.4m deal involved 6.1m secondary shares sold by Doughty Hanson and 3.3m primary shares sold by the company.
Pricing came in at €26.00 from a range of €24.50–€28.50. Bankers close to the deal said it was more than twice covered at the final price, with significant interest from the UK and France.
The 2005 P/E came in at 11.9, falling to 9.6 for 2006, while US comparable Enersys trades at about 15. The dividend yield is close to 4%, depending on estimates. Bankers said that this was sufficient to attract good quality names into the book, despite the concerns that some investors had over the sustainability of revenues on the military supply side of the business.
Bankers said that declines were expected this year and next in that operation, but that the company still offered overall annual sales growth of around 3%–4%. With a few days to go before pricing, bankers had said that there was sensitivity in around half the book. In the event, some 130 names were allocated shares.
The stock made its debut on June 30, closing flat to the IPO price. It hit a high of €26.75 during the day. The free float is 58% pre-shoe.