Deal in Focus: Quilvest exits Acrotec in uncertain Swiss watch market

When Quilvest acquired Swiss watch component maker Acrotec in 2012, it hoped to benefit from organic growth as well as recent changes in the market. Just one year prior to the acquisition, timekeeper giant Swatch announced it was to cut back its production of mechanical movements, which it supplied to many of its competitors in the country. This was bad news for those buying the moveables, who often do not have the resources to produce those parts themselves and relied on sourcing them from Swatch. They feared that supply would no longer meet demand. At the same time, the decision paved the way to a larger customer base for the likes of Acrotec, a company producing those precision parts. "There was a strong potential to win market shares and increase volumes," says Quilvest partner Thomas Vatier.

The favourable shift in the market combined with bolt-ons – of which Acrotec completed six in Switzerland and one in France since 2012 – helped to scale the business. Among the acquisitions was DJC, a French producer of parts for the car industry based in Thyez. Swiss business Petitpierre, which makes microparts for watches, joined the group in June 2016.

According to unquote" data, Quilvest invested CHF 30m of all-equity growth capital for a minority stake in Acrotec in 2012. The deal enabled an exit for EPF Partners, which invested in the company six years earlier. In addition to EPF's shares, Quilvest also picked up additional privately held stakes. Acrotec's turnover in 2012 was CHF 70m, and has since doubled, claims Quilvest.

Swatch change
Swatch's retreat from the moveables business, from which Acrotec benefited in recent years, might be over before the ink on Castik's purchase agreement has dried. On the announcement of the sale of Acrotec to Castik, a report by news agency Reuters revealed that Swatch was looking to renege on its 2013 agreement with Swiss competition authority Weko, where it agreed to reduce the supply of its moveables, and that the authority was examining its wish to do so.

Another challenge Castik will likely face is slowing demand for Swiss watches. According to the Federation of the Swiss Watch Industry, the value of watch exports from Switzerland was down 11.1% in April 2016 compared to the same time the year before, at CHF 1.6bn. Over the first four months of the year, combined value of export has decreased by 9.5%. Exports to Hong Kong faltered for the 15th consecutive month, coinciding with slowing growth in China, a major market for the Swiss luxury goods.

Vatier says the changing market conditions are likely to be mitigated by the company's strength: "Acrotec has been performing even though the market has been difficult. It is a cyclical market, but the company has been performing well nevertheless." Given Acrotec has a diversified foothold in several industries might have helped its growth through more difficult times. Besides the watch business, it also manufactures instruments in the medical, connectivity, automobile and aeronautic sectors.

Commenting on the timing of the exit, Vatier says, "The company has now reached the size we aimed at and has more than doubled in sales. The official sale price is almost CHF 300m, so we felt that this was the right moment to exit."

Acrotec is based in Develier near the French border, where it was founded in 2006. It has 600 employees.

People
Quilvest Private Equity – Thomas Vatier (partner).
Castik Capital – Michael Phillips (partner).
Acrotec Group – François Billig (CEO).

Advisers
Company/Management – Athemis, Frédéric Büchler (legal).
Vendor – Transaction R, Pierre Sader, Philippe Dubois de Montreynaud, Lionel Blache, Pierre Gibour (M&A); Lenz & Staehelin, Jacques Iffland, Hélène Weidmann (legal).
Equity – Bär & Karrer (legal); Arendt & Medernach (legal); Deloitte (financial due diligence); BCG (strategic due diligence).

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