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It all stacks up

In 2015, Averys was seen as a mature company in the unglamorous trade of industrial rack-manufacture. Four years after Equistone’s investment, it was a high growth, high yield, large buyout target. What went so right?

Equistone Partner, Grégoire Schlumberger
Equistone Partner, Grégoire Schlumberger

IN THE SUMMER of 2018, Equistone sold the European market leader in industrial racking systems to Blackstone. The US alternatives giant isn’t a typical purchaser for the firm’s portfolio companies, but then not much about Averys was typical.

When Equistone’s French team first looked at the business as an investment prospect in mid-2014, it appeared to be a fairly mature company. “It was not really a glamorous, shiny business,” says Equistone partner, Grégoire Schlumberger. “But when we looked deeply into the business and its long-term trends, the picture was more exciting.”

There was a further wrinkle. The existing chief executive, Jean-Dominique Perreaux, was in his mid-60s at the time of the initial investment, and it was informally agreed that he would retire within a couple of years of the sale in favour of Jos De Vuyst, the highly regarded CEO of Stow, the company’s largest subsidiary.

But when we looked deeply into the business and its long-term trends, the picture was more exciting.
Equistone's Thierry Lardinois and Guillaume Jacqueau
Equistone's Thierry Lardinois and Guillaume Jacqueau

To many equity investors, this situation was off-putting. But the Equistone team, which also included Thierry Lardinois and Guillaume Jacqueau, had built a trusting relationship with M Perreaux. He told them he would retire in June 2017, and the team trusted him to do so. As control investors, Equistone would have had the legal power to force the issue, but, says Thierry, it always prefers to safeguard its reputation for trusting and respectful relations.

Averys designs and builds storage and racking solutions, was founded in Paris in 1985 and over the years had bought up many competitors with the help of two consecutive private equity owners, including the current vendor. The most important of these was the acquisition of Belgium’s Stow in 2013, a deal which had transformed Averys from a France-centric operation into a large international group and the second largest racking provider in Europe.

Operational potential

Meanwhile, the business itself also appeared much racier beneath the surface. The team’s shop floor inspections of Averys’ various sites convinced them that its operations were tangibly more efficient than the competition. Among the subsidiaries, the team’s site visits to Stow showed it to be the best of a good bunch.

“Compared to the other factories, there was a huge gap between Stow’s industrial performance and know-how and the rest of the group. So we realised that Stow would be the driver of the group,” says Thierry. 

Despite the company’s history of acquisitive growth, these operations were not at all integrated, and so the team believed there was lots of operational improvement potential left on the table.

This was a bold position to take to Equistone’s investment committee, but they were convinced that the company was on the verge of strong growth. In addition, the macro trends looked positive and they were comfortable with the company’s ability to pass through any steel price inflation. Finally, the switch from traditional retail to e-commerce, they realised, would disrupt Averys’ clients, but not Averys’ business.

It was a huge success from a financial perspective, and it was a super investment from a people perspective.
Grégoire Schlumberger
Partner // Paris

Value creation

Avery's CEO, Jos De Vuyst
Avery's CEO, Jos De Vuyst

During its holding period, the company merged product lines in order to reap the full benefit of industrial synergies, and enabled plants to work together for faster delivery. It also identified numerous smaller add-on acquisitions that could be completed in the medium-term. Detailed diligence was undertaken on targets in the UK, Norway, and the US. The acquisition of Storax in Portugal was “a perfect fit”, in terms of geography, products and industrial network, says Thierry. The requirement for geographic proximity was, in fact, another defensive barrier. The sheer weight of the products means they are insulated from offshore providers with lower costs of labour.

Storax turned out to be the only add-on during Equistone’s holding period, because integrating the eight subsidiaries inherited from previous acquisitions was the focus. Two sub-scale plants were closed, one in France, one in China.

The original buyout deployed classic LBO financing at relatively high margins and with limited flexibility in terms of add-on acquisitions. After two years of trading, such was the company’s growth and financial performance (it had paid down its debt from an EBITDA multiple of 3.3x to 2x) that the team had the company rated by credit agencies in order to tap the global capital markets.

JP Morgan was mandated to arrange an investor roadshow in London and Paris, led by Mr De Vuyst, who was by now Averys’ CEO. The resulting bond issuance repaid entirely the shareholder loan and Equistone’s investment cost. In addition, the acquisition of Storax was financed through these lenders too.

Bitter-sweet farewell

In the event, this refinancing process attracted the interest of several large private equity groups, which ultimately precipitated a sales process. And when it came to exit, JP Morgan was again aggressive in terms of financing, tapping into a significant appetite to lend to the company.

 From what, at first glance, looked like a stable but dull business that failed to attract significant private equity interest in 2015, Averys had become red hot property, and in July 2018 the business was sold to Blackstone. In total, Equistone made a return of 4.6x money.

“It was a huge success from a financial perspective, and it was a super investment from a people perspective,” says Grégoire. “We were able to reposition the equity story and felt we had achieved great things with the management team in a short but intense period of time, which ultimately came to an end earlier than planned.” 

A full version of this article appeared in PLATFORM 03, Winter 2019/20