Doughty Hanson makes 2.5x on LM Wind Power exit

The exit comes 15 years after Doughty acquired LM Wind Power – then LM Glasfiber – in a €280m MBO from its founders, and represents an acquisition multiple of 8.3x EBITDA for GE.

The transaction fully realises the GP's 1998-vintage €2.66bn Doughty Hanson & Co Fund III. The fund is projected to post final returns of 2.4x cost and 18% gross IRR. LM was also partly held in Doughty Hanson & Co V, a 2006-vintage €3bn vehicle, which holds two portfolio assets following the exit.

Doughty Hanson is currently focused on managing its existing portfolio, having halted its fundraising efforts in 2015 – in part as a result of the untimely death of co-founder Nigel Doughty in 2012. LM was sold after an exclusive approach by GE, which has been a long-standing customer of the business.

A source close to the deal told unquote" the exit made 2.5x the GP's original investment. However, Doughty's ownership of LM has not been smooth sailing. Originally acquired by Doughty III in 2001, Doughty V became a part owner of LM during the 15-year hold. The GP's fifth fund was tapped to acquire Danish wind turbine brake systems manufacturer Svendborg Brakes in 2008 for DKK 3.4bn and subsequently merged with LM Glasfiber, with a view to floating the merged group at a later stage Five years later, Svendborg Brakes was sold at a loss of around DKK 2.8bn, when US investment company Altra Holdings bought it from LM for DKK 600m.

According to one source, LM suffered from being a very immature business in an immature industry when it was acquired by Doughty Hanson, with substantial improvements needed in terms of the company's management and operational processes.

LM was in the Danish health and safety regulator's sights in 2011, due to complaints over excessive levels of health-hazardous styrene at one of its Danish factories. The regulator also told LM to evaluate explosion risks at the factory, due to potentially inadequate ventilation. In the same year, the US Occupational Safety and Health Administration handed LM a $136,500 fine for 11 violations of health and safety regulations, including excessive levels of styrene in the atmosphere of its factory in Grand Forks, North Dakota. An unquote" source familiar with the investment said Doughty Hanson invested a substantial amount in the design of its existing and new production facilities to improve the company's safety record, and is currently in the process of eliminating styrene from the production process.

The global wind industry was severely hit by the financial crisis of 2008, as subsidies to green energy and wind turbine production were cut massively across the globe. In the years following, the sector was marred by increased volatility around subsidies. As a result of the crisis, LM had to substantially reduce its business in southern Europe and the US, where subsidies were scaled back or under threat of not being renewed.

Despite strong revenue growth until the global financial crisis and reasonable performance in the years following, LM has been loss-making for large parts of Doughty's holding period, according to publicly available figures. LM's annual net profits have been negative since the sale of Svendborg Brakes, posting a DKK 67m loss as recently as 2014, though EBITDA has remained positive and growing since a 2013 low of €76m.

It is understood the group also suffered under high debt levels after the 2001 buyout and the merger with Svendborg Brakes in 2008. As recently as 2011, LM was leveraged at around 4.5x EBITDA, which it has steadily been reducing since. It reported a 1.4x debt multiple at the end of 2015, having reduced its long-term interest-bearing debt burden from €412m in 2010 to €155m in 2015. Doughty invested heavily in the business, establishing nine production sites during its ownership. A source close to the deal said the GP realised no value before the exit, due to the cash-heavy nature of growing the business. LM was refinanced with a €130m corporate bond led by Nordea in 2014 and also issued a €50m green bond.

The group appointed new CEO Marc de Jong in 2015, and posted EBITDA of €115m in the full financial year 2015, from sales of €750m. It also said in its 2015 annual report it had made substantial cost savings across the company and reduced its lost-time accident rate to its lowest figure in the company's history. Doughty's ownership of the 70-year old business has also seen the company expand substantially, growing its presence in North America and establishing production capacity in Brazil. LM currently operates 13 factories across Europe, the US, India and China. It posted revenues of €260m in Q2 2016, representing a 45.4% increase on the previous quarter.

Previous funding
Doughty acquired LM Wind Power, then LM Glasfiber, in an MBO in May 2001, taking a 100% stake. The deal was supported by equity from Doughty Hanson & Co Fund III and a financing package of senior debt and mezzanine by Dresdner Kleinwort Wasserstein, syndicated to UniCredit.

Company
Founded as a furniture manufacturer in 1946, LM is a Danish manufacturer of wind turbine blades.

The company is headquartered in Lunderskov and operates factories across Europe, the US, China, India and Latin America. It currently produces the world's longest wind turbine blade, at 88.4 metres. Around a quarter of all wind turbines globally are fitted with LM blades.

LM generated turnover of €491m and EBITDA of €87m in the first half of 2016, expecting €1bn in turnover for the full year. It employs more than 9,000 people.

People
Doughty Hanson & Co – Dick Hanson (chair).
LM Wind Power – Marc de Jong (CEO).

Advisers
Vendor – HSBC (corporate finance).

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• Topics
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• Trade sale
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