driving performance
realising value
Track record
Dynacast
Buy, Improve, Sell
Dynacast was acquired in May 2005 alongside McKechnie Aerospace. During the six years of ownership, as a result of the improvement in its performance Melrose quadrupled the shareholders’ investment in Dynacast, selling the business for £370 million in June 2011.
Consistent with Melrose’s strategy, following the disposal approximately £373 million was returned to shareholders.
The sale of Dynacast means that nearly £1 billion in cash was generated from the original £429 million McKechnie and Dynacast acquisition.
Melrose successfully steered Dynacast through the global slowdown, and cost savings made during the downturn were retained as sales recovered. Melrose invested fully in Dynacast to expand capacity, particulary in the Far East, and improve efficiency. It also succesfully completed some bolt on acquisitions.
Under Melrose ownership, sales in all three of Dynacast’s main geographic regions grew strongly.
Acquisition of FKI:
Substantial potential
On 1 July 2008 Melrose completed the acquisition of FKI plc for a total
consideration, including debt, of just under £1 billion.
FKI was a major international diversified engineering group with four divisions, including some businesses with very good market positions.
However, in general terms and at the head office level, FKI was unfocused with a weak balance sheet and borrowings due to be refinanced in the near term. The financing terms of Melrose’s acquisition enabled the balance sheet issues to be resolved and the putting in place of a more appropriate group borrowing structure with lower overall debt leverage and a maturity date of 2013.
In addition to addressing the pressing financial constraints facing FKI, Melrose has identified a number of opportunities to improve the performance of FKI’s businesses over the next few years, principally through an increased focus on cash generation and profitability. Melrose will seek to invest in existing facilities and new capacity, as well as consider acquisitions and organic growth into new markets, where appropriate.
McKechnie Aerospace:
Creating significant value
Melrose acquired McKechnie Aerospace, along with the Dynacast businesses, in May 2005 for an enterprise value of £429 million. At acquisition it could see the benefit of the strong upturn in the aerospace cycle. Moreover, Melrose saw significant scope to improve the operational and financial performance of the business by adopting a vigorous hands on approach.
Melrose:
- invested heavily in the business to improve its performance and manufacturing efficiency
- supported the senior management to improve the depth and quality of management
- renegotiated key customer agreements
- improved relationships and trading terms with a consolidated supplier base
- improved aftermarket sales by better marketing, customer service and increasing stock levels
- where appropriate raised prices to reflect product development and customer service
In our two years of ownership revenues grew by 35%, EBITDA grew by approximately 75% with margins increasing by 6 percentage points.
On 14 May 2007 McKechnie’s aerospace and aftermarkets business was sold for £429m in cash, generating an IRR of 65% and an estimated profit (including cash generation during ownership) of approximately £250 million. In total it is estimated that the disposal crystallised a value increase of nearly 2.5 times.
Wassall PLC
Previous experience
The majority of the current management team record worked together at the industrial investment company, Wassall PLC. The business grew rapidly in the 1990’s, generating a return of nearly £500m for shareholders with a compound total shareholder return of over 18 per cent per annum over a 12 year period.
We believe McKechnie Aerospace provides a good example of how the Group can acquire high quality businesses, improve their performance and realise value for shareholders. McKechnie Aerospace was sold for twice the price paid within two years.
