Hg books big profit in Germany

Mid-market investor HgCapital has agreed to sell FTE Automotive, a clutch-making business, to PAI Partners for €370 million, generating a profit of €145 million.

HgCapital, the London-headquartered private equity group with an office in Frankfurt, has sold German portfolio company FTE Automotive to PAI Partners, the Paris-based LBO sponsor.

FTE, which makes clutch and brake actuation systems, fetched €370 million. Hg had acquired the business in December 2002 for €180 million from Dana Corporation and recapitalised it in the summer of last year. Overall, the firm achieved a €145 million cash profit, a 3.7 times cash-on-cash multiple and a 90 percent IRR on its investment.

During Hg’s ownership, FTE installed new management, successfully integrated add-on acquisitions in the US and Slovakia and also invested in China and Brazil. According to Trevor Bayley, head of Hg’s German business, over the course of the past two years, FTE achieved global market leadership in its sector.  

Bayley said in an interview with PEO that FTE was a great reward for the work Hg had done in Germany since the firm opened the Frankfurt office in 1999.

Commenting on FTE’s prospects going forward, Bayley said the company’s growth story was set to continue, with further buy-and-build as well as new product development still to come. “For PAI, there is plenty of growth left on the table,” Bailey said.

Craig Donaldson, Hg partner in charge of fundraising and investor relations, said the exit, the firm’s seventh in the last 12 months, was further proof that the firm’s investment model, based on deep industry knowledge, proactive portfolio management and the application of significant human resources to the firm’s investments, was working. “It also shows that our approach to the German market was right,” Donaldson said. “When we started, we took the view that it would take five years to build a successful business in a new geography, not two. This proved realistic.”

Hg, which spun out of Merrill Lynch Investment Management in 2000, currently has €1.3 billion under management. A new fundraising campaign is scheduled for later this year.