Hong Kong-based ShawKwei & Partners discovered Singapore-listed YongLe Tape, previously named CHT, in 2007 when it was hunting for investment ideas and ran searches on Chinese companies.
Over the years, ShawKwei had studied the speciality tapes manufacturer and brought in consultants to advise on the transaction. The impact of the global financial crisis was, however, the catalyst to the acquisition. The crisis hit YongLe severely and its shares were trading at depressed prices. When the business improved a few years later, ShawKwei took it private, paying 18 cents per share for an aggregate $66 million, a 98 percent premium over its then trading price.
Founded in 1985, YongLe manufactures and distributes various tape products to auto manufacturers, the electronics industry and retailers. Known as China’s 3M, the company is also the largest global PVC adhesive tape manufacturer.
Post-acquisition ShawKwei made management changes by hiring a new chief financial officer, introduced a monthly financial reporting and audit process, brought in a management incentive plan and implemented SAP for financial and operational reporting.
The most significant change, however, was rebranding the company under the “YongLe” brand, where previously it had four different names.
Kyle Shaw, founder and managing partner of ShawKwei, says a key driver for change was a six-month rebranding exercise for YongLe. “Bringing management together in a room to discuss and strategise the company’s vision, goals, as well as corporate culture to sharpen the brand also served to re-charge morale and the overall sense of purpose as we positioned the company for future growth opportunities,” says Shaw.
Product expansion was also a priority. ShawKwei supported and doubled down on the industrialisation of its existing products. This included the growth of higher margin cloth tape for the European market for companies such as Daimler and Volkswagen, low volatile organic compounds tape for the Japan market and the industrialisation of a proprietary hot-melt manufacturing process.
“The key factor in products like these is know-how. Making tape is not in and of itself hard but making millions of square feet of tape per month without having a lot of wastage is all about an efficiency game,” Shaw says.
Another major initiative by ShawKwei was to consolidate YongLe’s 14 small manufacturing facilities located near Beijing and Shanghai into a single mega-factory. The company sold these plants for $8 million to move manufacturing operations to a new custom-built 880,000 sq ft leased facility. In the process, $30 million of CAPEX was injected to upgrade manufacturing equipment and to shift to European (rather than Chinese) rollers and cutters. As a result, production lines were reduced by a third and production output per line increased by 30 percent.
In addition, the company installed a state-of-the-art solvency recycling system imported from Italy, which significantly improved recycling of chemicals from 65 percent to over 99 percent. This equipment upgrade reduced the amount of new chemicals needed and lowered the plant’s impact to the environment.
With these changes, YongLe Tape recorded total revenues of over 1 billion yuan ($145 million; €135 million) in fiscal year 2016. The increased profitability allowed it to pay off all of its $47 million debt, provide an annual dividend of approximately 10 percent of profits and accumulate a cash balance of $55 million which was distributed to its shareholders.
In June this year ShawKwei completed the sale of YongLe to Avery Dennison for $200 million, garnering a 5.1x exit multiple and 37 percent net IRR.
Large-cap: The Carlyle Group – Vogue International
Upper mid-market: Cerberus Capital Management – Bowlmor AMF
Lower mid-market: Francisco Partners – Paymetric
Small-cap: The Riverside Company – YourMembership
Upper mid-market: ShawKwei & Partners – YongLe Tape
Lower mid-market: Advantage Partners – Hisense Broadband Multimedia Technologies*
Small-cap: Mekong Capital – Mobile World
*Hisense is not included in the write-ups due to confidentiality issues