HgCapital’s Xyratex in $400m Nasdaq float

Xyratex, a data storage provider backed by European mid-market private equity firm HgCapital, is today floating on Nasdaq with a market capitalisation of around $400m.

HgCapital, the London-based mid-market private equity investor, is floating portfolio company Xyratex on the Nasdaq market. Despite having its headquarters in the UK, most of the firm’s customers are in the US.

The IPO sees Xyratex offer its shares at $14 each, meaning that HgCapital’s investment of £50 million ($90 million) in the company in September 2003 is now worth more than $145 million at the issue price.

A source at HgCapital said the value of its investment at the issue price equates to an IRR of more than 70 percent. However, he added that this was effectively a ‘paper’ valuation given that the firm is retaining a stake of more than 82 percent in the business post-IPO. 

Based in Havant, Hampshire, Xyratex now has two offices in the UK, four in the US and three in Asia. The company was formed in the 1970s as a manufacturing plant making hard disk drives for IBM. It was bought out in the early 1990s by the management team, mainly with bank debt and also a small equity investment from Murray Johnstone Private Equity. Over the last four years, Xyratex has almost quadrupled its revenues to $333.8 million.

In September last year, HgCapital bought out the existing management team, which was approaching retirement, and replaced them with second-tier management that had been groomed to take over.

Xyratex is now a provider of enterprise data storage subsystems and network technology. It designs and makes enabling technology that provides OEM and disk drive manufacturer customers with data storage products to support high-performance storage and data communication networks.

The business is aiming to capitalise on two key trends: an increase in the volume of data that is being captured, processed and stored from critical business applications such as email and the Internet, which have fuelled an increase in demand for data storage capacity; and the proliferation in technologies that address the complex requirements of network storage and resulting increase in technology outsourcing by leading OEMs.

Nic Humphries, who led the investment for HgCapital and sits on the Xyratex board, told PrivateEquityOnline the firm would not be looking to sell down its stake in the business when the opportunity arose. “We don’t see this as a quick flip at all, we’re looking to support the business over the medium to long term,” he said.

Immediately prior to the IPO, HgCapital announced that Andy Sukawaty had been invited to join the Xyratex board. He oversaw the highly successful privatisation of NTL in a deal led by HgCapital, and was also CEO of Sprint, the US-based wireless provider.