Further evidence that a growing number of private equity firm's portfolio company transactions involve other private equity firms comes with the news that Aberdeen Murray Johnstone Private Equity, the UK small and mid-cap private equity investor, has sold its interest in Xyratex Group, a UK-based storage and network technology business to mid-market private equity firm HgCapital.
The Xyratex Group was formed to lead the MBO of the IBM manufacturing site at Havant in 1994. Following a series of acquisitions and disposals, the business now employs more than 600 people worldwide. Certain property assets and legacy businesses were spun out to another company, Havant International, in 2000. AMJPE clients sold their stake in that business earlier this year.
AMJPE invested £5m in the original business and the firm reports that this sale has resulted in a total return of 4.7 times the cost of the investment and an IRR of 44.7 per cent over the life of the investment.
“This has been an excellent investment for AMJPE,” Neil MacFadyen, who negotiated the sale of behalf of AMJPE, said. “The management team has done a superb job in developing the business through carefully selected acquisitions and disposals and the company has a solid and growing earnings stream.”
HgCapital has not disclosed the details of the size of its investment, although the firm did confirm that it would make additional capital available for future company growth. “Xyratex has an exceptional management team that has created a true global business and doubled revenues to over $250m in the last three years,” said Nic Humphries, director and head of technology investment at HgCapital, who joins the company’s board.
Secondary transactions, referring here to when a company is sold by one private equity firm to another, have become increasingly prevalent in the past 12 months. Some investors have expressed concern that such deals go against the basic principle of private equity that says that a fund should maximise the value added of a company it acquires before selling it to a trade buyer. How, ask these limited partners, can another private equity firm expect to add further value by buying such a company? Others, include the general partners participating in such deals, make the point that different private equity firms can take portfolio companies further down their evolutionary path. Hence a smaller, domestically focussed buyout fund can sell a company on to a larger, more international group that can help the company extend its business across a region and beyond.
This sale to HgCapital marks AMJPE’s fifth exit in as many months. Card Warehouse, the discount card retailer, was sold to smaller rival CardFair in a deal that netted AMJPE 2.5 times its original investment. Other exits have included, SECO Aluminium, Havant International and RAL Holdings, which was sold in another secondary sale to PPM Ventures in a £40m transaction last month.