Deal in Focus: Doughty Hanson scores Balta Group exit

The vendor has yet to communicate the return it expects to score, although market sources place it at 1.5x the sum the GP invested in the 2004 buyout. According to these same sources, the sale will earn the London-headquartered firm an exit multiple of 7.5x the €64.9m EBITDA posted by Balta in 2014. The figure represents a 30% uptick compared with the 5.7x entry multiple reported by Doughty Hanson when it acquired the company.

The transaction, expected to be finalised at the end of August, puts an end to a sale process initiated in December 2014 and intermediated by JP Morgan. Sources close to the deal report a number of potential trade and private equity suitors were considered by Doughty Hanson. Once Lone Star Funds emerged as the winning bidder, the negotiations evolved into an exclusive process.

The sale is understood to value Balta within the €500-600m range, the actual figure lying closer to the lower end of that bracket. Should it be confirmed, this amount would fall short of the €600m enterprise value that was attributed to the carpet manufacturer when it was bought by Doughty Hanson in 2004.

The gap is explained by the repayment of the debt put in place in the 2004 buyout in parallel with an increase in the value of the company's equity, unquote" understands. In addition, Balta has undertaken a number of partial exits under Doughty Hanson's tenure in an effort to streamline the company's structure.

Maiden Benelux deal
Founded in 1964, Balta Group manufactures mechanically-woven rugs, wall-to-wall carpets and carpet tiles. It employs 3,300 staff across eight production facilities worldwide, which include six locations in Belgium, two in Turkey and a distribution site in the US. In 2014, the business posted €520m in turnover.

In June 2004, Doughty Hanson deployed €116m of an equity total of €145m to acquire a 70% stake in Balta, including co-investments from limited partners, while the Balcaen family retained the remaining 30%. According to market sources, the capital structure has remained unchanged during the ownership period.

The primary buyout, the first by Doughty Hanson in the Benelux region, was supported by a €455m senior debt package underwritten by CSFB and RBS that comprised senior facilities of €335m and a €120m strip. Under the GP's tenure, Balta is understood to have brought in new senior debt via a refinancing, although no dividend recapitalisation took place.

Super eight
The deal marks the eighth divestment by Doughty's fourth fund. With three assets still to be exited, the vehicle has so far returned 150% of total commitments to investors and yielded an average 2.2x return and 24% gross IRR.

Remaining portfolio companies include French concrete products manufacturer KP1, picked up in a secondary buyout alongside Ardian and LFPI from Alpha Associés Conseil; Irish television channel TV3, bought for €265m; and Italian air freshener and insecticide business Gruppo Zobele, thought to have been acquired for €300m. Once fully realised, Doughty's fourth fund is expected to return between 220-230% of committed capital to its LP base.

The vehicle held its final close in 2005 on €1.5bn, short of its €3bn target. Market sources claim the fundraising was cut short following the €390m acquisition of French battery manufacturer Saft in January 2004, which was the fund's first investment. The business's strong performance within months of the buyout led to exit scenarios featuring a potential 4x return. At that point, existing LPs reportedly demanded a halt in fundraising to prevent dilution and vowed to reinvest in Doughty's fifth fund, which reached its €3bn target seven months after launch, according to unquote" data.

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• Topics
• Benelux
• Exits
• Belgium
• Doughty Hanson & Co
• Unq2015July