Equistone books 2.5x return on Hydrasun

The oil and gas sector exit to Investcorp comes shortly after the close of Equistone's first independent fund.

London-headquartered Equistone Partners Europe has sold Hydrasun, a provider of fluid control equipment and solutions for the oil and gas sector, to fellow private equity investor Investcorp for an undisclosed amount.   

Media reports have suggested the sale was somewhere between $150 million and $300 million. 

Equistone and Investcorp declined to disclose the sale price. 

The sale represented a 2.5x return on the roughly £40 million in equity Equistone invested in the company in 2007, according to a statement. 

Equistone started an auction process in September 2012, Rob Myers, managing director of Equistone, told Private Equity International. “We approached a small number of trade purchasers and financial sponsors and that is because we received approaches from both trade and financial sponsors during the first part of 2012,” he said. 

When you look at the performance relative to other funds it has returned a significant proportion of commitments with a number of successful
exits

Rob Myers

Equistone had seen Hydrasun as “an opportunity to back a well-proven and high calibre management team in a fragmented and fast growing offshore oil and gas market”, Myers said in the statement. Since then, the company’s revenues have grown from approximately £50 million in 2008 to more than £105 million for the financial year 2013. 

Under Equistone's ownership, Hydrasun established a new £12 million headquarters in Aberdeen and carried out three bolt-on acquisitions. The business also expanded into Kazakhstan, the Middle East, West Africa and South America, growing its workforce to 600 in 2013 from 400 in 2007, according to the statement. 

The investment was made from Equistone's €2.45 billion Fund III, which has now returned 75 percent of drawn commitments to investors, Myers said. Within its vintage, the fund is performing well, he added. “We raised that fund in 2007 and we closed the investment period in 2011 and that is viewed as quite a challenging vintage. When you look at the performance relative to other funds it has returned a significant proportion of commitments with a number of successful exits,” he said. 

Investcorp used its $1 billion Gulf Opportunity Fund to provide approximately half the equity of the acquisition. The other half of equity came through co-investments from the firm's investor base, Hazem Ben-Gacem, Investcorp’s head of European corporate investments activities, told Private Equity International. The debt-equity split could not be disclosed although Ben-Gacem said the debt component was “conservative” to “leave some dry powder for future capital to go in for add-on acquisitions”. 

There are a significant amount of offshore gas fields coming up in the Red Sea. Because of our strong relationships and contacts we feel that we can be very helpful in expanding Hydrasun's activities in the Middle East

Hazem Ben-Gacem

The market in which Hydrasun operates has been growing well, Ben-Gacem said. “[This is] very much driven by the increasing oil demand and the increasingly attention to health and safety and the leakage of these offshore rigs. The BP disaster in the oil of Mexico has raised a lot of awareness and attention into the safety of these offshore rigs. Hydrasun does a lot of certification and inspection of these hoses to ensure there are no leaks and this is [another reason] why this business is growing very nicely,” he said. 

Investcorp would like to support the company's growth in Latin America, the US and the Middle East and do add-on acquisitions, particularly in geographies where there’s a significant expected growth in the offshore drilling, he said. The firm aims to benefit from its experience in the Middle East. “There are a significant amount of offshore gas fields coming up in the Red Sea. Because of our strong relationships and contacts we feel that we can be very helpful in expanding Hydrasun's activities in the Middle East,” he said.  

Following the investment, Investcorp's Gulf Opportunity Fund will be more than 70 percent deployed. It will be one of the last investments out of that fund, Ben-Gacem added. The firm is likely to raise a successor fund. “I think we have a lot of appetite and interest from our investors for private equity investments in new emerging markets, outside Europe and North America. We will probably continue that initiative [in the Gulf], but also expand beyond the Middle East into Turkey and maybe Central Asia,” he said. 

Equistone’s divestment comes after the firm recently closed its Equistone Partners Europe IV on its €1.5 billion target. It is the first independent fund following the spin-out of Barclays in November 2011.

Simmons & Company International advised Equistone on corporate finance and KPMG advised on tax. Financial due diligence was done by Deloitte Touche Tohmatsu, while Travers Smith and Burness Paull & Williamsons advised Equistone on legal matters.