Deal in Focus: Polaris's exit of CWS fails to meet par for GP

Listed electricity producer Energie Badem-Württemberg (EnBW) acquired the GP's majority stake in CWS, taking full ownership of the Balle-based business, four years after it was acquired by the Danish private equity firm.

"Put in the perspective of private equity returns and the overall returns from Polaris' portfolio, our return on the sale of CWS was positive; however, it was at the lower end of our typical return levels," Polaris partner and CFO Henrik Bonnerup tells unquote" in a refreshing bout of honesty. The GP's most recent exits include a 5x return on Swedish home improvement retailer Skånska Byggvaror and 4x money on the sale of animal feed ingredients maker Hamlet Protein to Altor and Goldman Sachs.

"It was a natural time for us to exit CWS and EnBW was a good fit for the company, so that was among the main motivations for the decision to sell," he says. "Polaris had reached a point where we had owned the company for four years and there were new strategic efforts to undertake for CWS, which coincided with buyers approaching us for it.

"We were approached by several prospective buyers around Christmas, which was the catalyst for us hiring SEB to run a sales process for CWS. The process was single-track as an IPO option was never on the table for us."

The Polaris partner says there was solid interest to buy the asset, though no private equity firms were part of the sales process - all bids originated with trade buyers.

The process was single-track as an IPO option was never on the table for us" – Henrik Bonnerup, Polaris Private Equity

EnBW's acquisition of CWS was made with the aim of integrating a service provider into its group, which includes a 336 mW offshore wind portfolio, and forms part of a consolidation push at the top end of the market for independent service providers (ISPs) in the wind turbine maintenance industry.

The energy company's bolt-on also fits the narrative of more and more wind turbine operators looking to break free from their OEM service contracts in favour of cheaper third-party providers.

"The European wind services industry is relatively consolidated at this point, with the major players having been acquired by the big energy providers and wind turbine producers, though the smaller end of the wind services market remains somewhat fragmented," Bonnerup says.

The way the wind blows
In July 2012, Polaris used its €365m 2009-vintage Polaris Private Equity III fund to acquire what was then known as DMP Mølleservice from its founders, in a management buy-in.

Founded in 1987, CWS is a European provider of maintenance services to onshore and offshore wind turbines, with bases in Denmark, Sweden and Germany. The company forms part of the Danish wind industry – a sector that has largely been driven by turbine manufacturer Vestas, which is among the largest producers in the world.

The deal was supported by an all-senior debt package by regional lender Sydbank, which had been the existing banking provider to DMP ahead of the acquisition.

"At the time, Polaris had mapped out the wind industry and its sub-sectors, and decided that the fund wanted to invest in the wind turbine services sector," Bonnerup says. "The lay of the land with independent services providers in the Danish wind sector meant the only real option for us was DMP Mølleservice."

An approach was made and the GP entered into an exclusive process with the owners. After the deal was completed, Polaris brought in a new management team to work with the existing owners and then enacted a strategy of organising the business and consolidating across four countries.

For Polaris, the investment in CWS was its second play in wind-related industries. Also acquired with its third fund, the GP had taken a majority stake in Avanti Wind Systems, a Danish producer of lifts, ladders and safety systems for the wind turbine industry, in July 2011.

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