Finatem's HGears lists with €270m market cap

The offer comprises 2.4 million shares from a capital increase, 3.4 million from HGears' selling shareholders (including 1 million shares from the exercise of an upsize option), as well as an overallotment of 870,000. The offer corresponds to a free float of 64%.

The IPO has generated returns of 6x money and IRR of around 25% for Finatem.

Finatem is to retain a 30% stake in HGears following the IPO. The stake will be held in Finatem III, which held a final close in July 2011 on €135m. HGears and professional lighting company Lichtbasis, which the GP acquired in 2014, will be the only portfolio companies remaining in the fund following the IPO.

The company now has a medium-term target of doubling its revenues to €250m and more than tripling the revenues from its electric vehicles business to €150m, the company said in a statement.

Finatem originally began to prepare a sale process for HGears in February 2020, with indicative bids expected in October, Unquote sister publication Mergermarket reported. HGears was marketed based on adjusted EBITDA of €20m and revenues of €120m.

However, the process did not conclude with a sale, and the company announced its intention to list in Frankfurt in April 2021. It later stated that the IPO would be priced at €26 per share in May 2021.

"It is correct that we discovered options and discussed these with some market participants," Daniel Kartje, a partner at Finatem, told Unquote. "However, it became apparent that two partially contradictory developments had collided: potential acquirers would have been strategic buyers from the automotive sector – but they faced other challenges in the coronavirus year of 2020. At the same time, HGears' business continued to develop even more strongly last year. The Capex requirements to finance growth for the next few years and the good state of the stock markets then led us to decide in favour of an IPO."

Asked about how the business fared during the pandemic, Kartje told Unquote: "We did not see a strong reduction in sales in the pandemic. We have three segments: 'e-mobility', which was growing as planned or more strongly; 'e-tools', which developed quite well as the building industry was fine; and the automotive segment, which was more affected. But overall the company made its way through well."

Finatem had experience in the bicycle components sector prior to forming HGears via the merger of Herzog and MG MiniGears in 2014. The GP acquired Derby Cycles in 2005, subsequently listing the company on the Frankfurt Stock Exchange at a market cap of €97.5m and enterprise value of €101m, according to Unquote Data.

Previous funding
Finatem acquired Germany-based Herzog in 2011, followed by Italy-based MG MiniGears in 2014. The companies were both acquired via Finatem III and were subsequently merged to form HGears, combining each company's focus on machining and metal technologies to focus on the development of components for electric bikes and extra-high-voltage systems.

"Through the buy-and-build activities, we first had to build a new company with everything that goes with it, including locations in the Black Forest, in northern Italy and in China," Kartje said. "We helped to build up a new management organisation and a lot more. We already recognised a few years ago that HGears could be an interesting stock market story. In our business, however, you have to be flexible with regard to market conditions, so you can't plan such a step too long in advance."

Company
Headquartered in Schramberg and with additional operations in northern Italy and China, HGears produces precision turned parts, drive components, gear kits and complex systems for use in electric bikes, cars and power tools.

HGears was formed by Finatem as a buy-and-build platform in 2015 via the merger of two portfolio companies: Herzog was founded in 1958, while MG MiniGears was founded in 1976. Herzog posted revenues in the €45-50m when Finatem first acquired the company in 2011. HGears posted adjusted 2020 EBITDA of €22.7m, compared with €17.5m in 2019 and €10.3m in 2018. It posted 2020 revenues of €126.3m in 2020, including a growth in its revenues made from electric vehicles of 59% compared with 2019.

People
Finatem – Daniel Kartje (partner); Christophe Hemmerle (managing partner); Alexander Stein (investment director).
HGears – Pierluca Sartorello (CEO); Daniel Basok (CFO).

Advisers
Vendor (Finatem) – Evercore (corporate finance); Ashurst (legal); Hogan Lovells (legal); Oppenhoff & Partner (legal); CMS (legal).

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