Deal in Focus: Silverfleet's sale of Kalle proves viability of SBOs

Despite being the third private equity house to buy the business, back in 2009, Silverfleet believed it could grow and add value to sausage case producer Kalle: "The number of previous owners does not determine whether a business is still interesting," says partner Guido May. "At the time we bought the business, it had an exceptional market position, an innovative strategy and a strong management team. We therefore saw a lot of growth potential. "

The assumption appears to have been validated with the GP supporting the business's continued growth trajectory, which eventually saw it selling for around €475-500m, according to a source familiar with the deal. The sale price equates to 9-10x EBITDA.

There are only a limited number of IPO windows each year and, considering current market fluctuations, we were not sure whether this step made sense" – Guido May, Silverfleet Capital

Silverfleet expects to achieve a return multiple of 3.5x on its initial investment of €71.5m, with the IRR amounting to 22.5%. Electra Private Equity, which acquired a minority stake from Silverfleet in 2010, is expected to receive proceeds of £22m. Together with proceeds generated from Kalle's refinancing in 2013, Electra's total proceeds from the investment will be £27m. This equates to a return of 3x original cost, for an IRR of 21%.

Kalle was acquired by Silverfleet from Montagu Private Equity for €213m in August 2009. Initially, CVC Capital Partners purchased the company in 1997 after its former owner, chemicals business Hoechst, changed strategy to focus on its core competence. CVC then sold the business to Montagu in 2004, which passed it on to Silverfleet in 2009. Impressively, all GPs managed to generate a good return from the business: 4.5x for CVC, 2x for Montagu and now Silverfleet's 3.5x.

A main reason for the company's continued growth is global expansion, to which each GP contributed. Under CVC's ownership, Kalle made two add-on acquisitions to bolster growth. Later, Montagu invested €28m for modernisation projects as well as another €20m for research and development, and pumped investment into a green-field production site in the US, which helped sales in the country increase from €5m in 2004 to around €25m in 2008.

Fleshing out the business
When Silverfleet bought the business in 2009, the GP believed there were further opportunities for a continued buy-and-build strategy and targeted several acquisitions. By the end of the investment period, one business was acquired: US-based Jif-Pak, a producer of nettings and casings, was bought in 2010. "The company's largest singular market today is the US," explains May. However, the GP also invested in the US- Czech-, and Germany-based production facilities and focused on innovation: "We invested into the development of new products. Those account for 20% of revenues nowadays."

Silverfleet initially planned to list Kalle on the stock market but later discarded the idea. "There are only a limited number of IPO windows each year and, considering current market fluctuations, we were not sure whether this step made sense at the time we planned to exit." Opting for an auction process instead, Silverfleet kicked off the exit in autumn last year hiring Rothschild as M&A adviser. According to German newspaper FAZ, US-competitor Viskase was also interested in the business.

While quaternary buyouts remain rare, the Kalle deal highlights private equity's high level of dry powder and a lack of opportunities in Germany. It was only the 19th buyout in the country this year, according to unquote" data.

Kalle is a producer of viscose, polymer and specialty casings for sausages. Headquartered in Wiesbaden, the business was founded as a chemical factory in 1863. It was acquired by chemicals company Hoechst in 1907 and spun out almost 90 years later. The business employs 1,700 people operating from 16 production facilities in nine countries, serving 100 countries worldwide.

People
Electra Partners – Charles Elkington (partner).
Silverfleet Capital – Guido May (partner).
Kalle – Carsten Heldmann (CEO).

Advisers
Vendors – Rothschild (M&A); Kirkland & Ellis (legal); Roland Berger (commercial due diligence); PwC (financial due diligence, tax).

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• Topics
• GPs
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• DACH
• Deal in focus
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• Silverfleet Capital