Deal in focus: Springwater sells Delion four years after carve-out

The recent sale of Delion by Springwater Capital saw the company's CEO, Ignacio Bazin, and two industrial investors acquire the business, while the GP is understood to have fully exited after four difficult years.

According to local press reports, Bazin acquired a 10% stake in the business as part of the deal. While the private equity sponsor was not available to comment on its return figure, the sale is an exit for its evergreen fund Continuum. It is understood that during the sale process the GP talked to several strategic buyers, but the managers made the most appealing offer.

Bazin was promoted to CEO of Delion from his position as chief operational officer when Springwater carved the business out from the Spanish technology conglomerate Indra in July 2013 for €17m. A source close to the situation says the original deal was a "complicated process, in particular from a labour perspective". Indeed, it is understood the whole process took 10 months of further negotiations after the parties had initially agreed on the deal.

Though the original plan did not work out, this was not because of a lack of management skills, but because of difficult market conditions and the inorganic growth pursued" – industry source

Prior to the acquisition, which was the GP's first investment in Spain, the business was a non-core asset within the Spanish multinational player and was trading under its parent's brand. Following the spin-out, the GP rebranded it as Delion Communications and started marketing the company under its new name.

It is understood the deal was also complex from an IT perspective and it took time for the GP to establish the business as a standalone, not just from a commercial point of view but also in terms of the company's own technologies. Given it was a carve-out process, the GP used "very modest" leverage, based on a 1.5x debt-on-EBITDA multiple, the source says. "Spin-outs do not allow the use of an important gearing structure because the business does not have historical balance sheets," the source says.

Delion specialises in document process management and implementation of business-to-customer communication channels. It currently has 380 employees across four production centres – Barcelona, Bilbao, A Coruña and Madrid – and posted €33.4m in revenues in 2015. Throughout its private equity ownership, the business posted "flat performance", the source tells unquote". "Delino acquired market share, but there was a margin of decline across the whole sector within the country."

Struggling for multi-channel traction
The company's core business is digitalisation – in particular for processes related to communications – and its clients include banks and insurers. "The fund manager saw traction across the sector, as several clients needed to accelerate the digitalisation and analysis of their databases," says the source. As a result, Springwater approached the investment with the strategy of transforming the business into a multichannel customer communication firm.

In order to do that, the source says the GP aimed to consolidate the market and "take the margin pressure away from the company's balance sheet, bolstering the marketing side of the business". However, it is understood the sponsor did not succeed on either of these aspects. Springwater was unable to buy Delion's two main competitors or build a strong customer communications operation within the business.

"During its private equity ownership, Delion started growing, but at a lower rate than the GP was expecting," says the source. "Though the original plan did not work out, this was not because of a lack of management skills, but because of difficult market conditions and the inorganic growth pursued."

It is understood there was high market pressure in the space due to the presence of government-backed player Correos. "With its postal service, Correos wanted to secure its mailing system and therefore acquired any business it could, to keep competitors out of the postal sector," says the source. Indeed, it is understood other prominent postal businesses have also been severely impacted by the success of Correos.

The GP attempted to bolster marketing operations within the business in order to compete in the sector, the source explains, but "it would have taken long to build up the business, and therefore the GP decided to sell to the team".

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