Deal in Focus: IK buys Schock from HQ Equita

Katharina Semke
16 November 2016

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IK Investment Partners is aiming to double the turnover of sink manufacturer Schock, despite being the third private equity firm at the helm of the business. Katharina Semke explores the GP's strategy and track record in the sector

Sink producer Schock, which was acquired by IK investment Partners in November, operates in a niche segment. While the majority of sinks in kitchens around the world are made from stainless steel or resin, Schock's are granite-based. By using a more expensive material and offering different models and colours, the business operates in the more upscale market segment.

IK, which acquired the business from mid-cap buyout firm HQ Equita, is intending to tap into the growing middle classes in countries such as the US and China to increase the company's customer base. "An international expansion strategy is something we have done before, and a strategy we have more experience in, compared to investors that only focus on the German-speaking region," claims partner Detlef Dinsel.

Turnaround strategy
Schock only started pursuing an international expansion strategy in recent years, since previous investors had more urgent matters to contend with. Turnaround specialist Capital Management Partners (CPM) bought the sink producer in 2001 during financially troubled times for the company.

Shortly before the millennium, the family-owned business came under the management of its third generation, who implemented an ambitious growth strategy. This was financed by short term bank loans, which the company struggled to repay as the strategy faltered.

Subsequently, Schock was acquired by CPM and avoided entering into administration. The investor restructured Schock by implementing measures such as selling loss-making business units and repositioning the company to focus on sinks.

Schock implemented an international expansion strategy, and opened a site in Pennsylvania in order to build an independent distribution network

By 2002, Schock had returned to profitability, and the acquisition by HQ Equita followed in 2010. "We implemented a growth strategy and were able to win over new customers," explains HQ senior investment manager Florian Wiemken. One of the measures encouraged by the GP was the establishment of a site in Pennsylvania, with the aim of building an independent distribution network. Before that, Schock relied on a cooperation with local partner Houzer.

Under HQ's ownership, Schock also expanded its product range beyond kitchen sinks to include the production of bathroom sinks. As a result of this strategy, Schock now has customers across 70 countries and anticipates a turnover of €65m in 2016. After the completion of its strategy, HQ Equita started a sales process run by William Blair in summer 2016.

Walking on beaten tracks
In addition to targeting further organic expansion across the US and China, IK also hopes to grow the business via add-on acquisitions: "There are other smaller businesses that are also active in the higher price and quality segment, and we hope to acquire some of them," says Dinsel.

IK actively looks for kitchen- and bathroom-related businesses, as it has previous experience in the sector. In December last year, the investor bought Danish kitchen producer TCM in a secondary buyout from Axcel. It also bought sanitary fittings company Hansa Metallwerke in 2010, and exited the business generating a 42% IRR in 2013. IK's first investment in the sector was in 1996, when it bought Swedish kitchen producer Nobia.

Advisers
Equity – Alantra (M&A); EY (financial due diligence, tax); Goetzpartners (commercial due diligence); Latham & Watkins (legal); Golder (environmental due diligence); Marsh (insurance due diligence).
Vendor – William Blair (M&A); Alvarez & Marsal (financial due diligence); KPMG (commercial due diligence); Watson Farley & Williams (legal, tax advisroy); ERM (environmental due diligence); Mesterheide (insurance due diligence).