3i backs UK tool hire group MBI

3i has backed a £145m management buy-in at HSS Hire Service Group, the tool hire business of UK-listed Davis Service Group.

UK-listed private equity firm 3i has completed its second major deal this month, backing a management buy-in at HSS Service Group, a tool hire business with operations in the UK, Ireland, Germany and the US.

3i has brought in Alan Peterson, former chief executive of Meyer International and member of 3i’s Partnership Programme, as chairman, while Paul Nolan, the former managing director of Serviceteam Holdings, a previous 3i support services venture, becomes chief executive. Lister Fielding, the current group managing director of HSS, becomes deputy chairman.

3i has agreed to pay £145m for the business in a deal backed with debt financing from a syndicate of banks led by ABN Amro. The consideration comprises £112.5m in cash, £12.5m in vendor loan notes and £20m in a secured vendor loan.

David Service Group was first approached about its HSS unit in March this year and was thought to be in talks with building supply group Wolseley before talks broke down in September. Davis was originally hoping to secure a price of around £180m for the business, although at the time of the breakdown in talks with Wolseley, the price on the table had fallen significantly below that figure, the result of worse-than-expected half year results for HSS, which reported operating profit of just £0.8m against turnover of £86.7m.

Davis acquired HSS from John Mowlem & Company Plc ten years ago for £52m and has overseen its expansion to over 500 outlets across the UK, where it has an 18 per cent market share, and Ireland. In the US, the business trades as HSS RentX, following the £36m acquisition of RentX Industries. in July 2001. In its last full set of results, the unit reported turnover of £182m and operating profit of £18.9m.

“HSS will have independence for the first time in its 40 year history,” said Lister Fielding. “We will have the opportunity to move our business forward with a strengthened management team driven by providing customer service excellence.”

Management and 3i were advised by Deloitte and Touche Corporate Finance.  Davis Service Group was advised by DrKW.