3i sells ESG to Socotec, generating £30m in proceeds

Kenny Wastell
22 March 2017

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3i has sold testing, inspection and compliance business Environmental Scientifics Group (ESG) to French trade buyer Socotec, generating proceeds of ТЃ30m after a nine-year holding period.

The deal represents a 23% uplift on ESG's valuation as of December 2016, according to a statement issued by the vendor.

The sale comes six and a half years after ESG (at the time known as Inspicio) sold commodity-testing business Inspectorate to Bureau Veritas for an enterprise value of £450m.

At the time of 3i's initial investment in Inspicio, it said it was looking to undertake an international expansion strategy. When the group divested the Inspectorate division, 3i also said it had not been looking to make a partial divestment. Inspectorate accounted for 70% of ESG's turnover at the time of the sale, according to a report by unquote" at the time.

In September 2010, around the same time as the Inspectorate divestment took place, the group undertook a £73m refinancing, with Bank of Ireland, Barclays, GE Capital and HSBC providing a loan package. The senior financing was split into an £18.5m amortising term loan A, an £18.5m bullet term loan B facility, a £20m acquisition facility and a £5m revolving credit facility. Indigo Capital also provided £11m of mezzanine to support this recapitalisation.

The business subsequently rebranded as ESG, before disposing of its food testing divisions, Eclipse Scientific Group and Advanced Micro Services, to listed trade buyer Campbell Brothers in April 2012. The deal valued the division at AUD 39m, which at the time was equivalent to around £26m.

The business refinanced once more in June 2015, securing a £30m five-year facility to support further investment in new and existing testing facilities and equipment.

Most recently, ESG invested £100,000 in its existing oil testing laboratory in Hexthorpe, Doncaster, in January 2017 and opened a new specialised asbestos laboratory in south Wales in July 2016. In addition to its investment in facilities, the business has also made 15 acquisitions under 3i's tenure, according to the GP's website.

3i's strategy has repositioned the company as a pure-play environmental testing, inspection and certification business.

The consolidated Socotec group anticipates revenues of €800m in 2020 as a result of the ESG acquisition.

Previous funding
3i backed the £335m take-private of ESG in January 2008. The original deal followed a competitive process for the business, with DLJ Merchant Banking Partners and Clayton Dubilier & Rice also taking part in the bidding.

Company
Headquartered in Derby and founded in 2005, ESG provides testing, inspection and compliance services for the energy and waste, infrastructure and built environment sectors. It has a headcount of 1,400 across 30 UK locations and generates revenues of €100m, according to a statement issued by the company. In 2015, ESG generated £7.4m in EBITDA before exceptional items, from a turnover of £77.1m, according to publicly available documents.

People
3i – Pete Wilson (partner).
Environmental Scientifics Group – Ian Sparks (CEO).
Socotec – Hervé Montjotin (CEO).

Advisers
Vendor – DC Advisory (corporate finance); Travers Smith (legal); KPMG (financial due diligence, IT due diligence); Deloitte (tax); OC&C (commercial due diligence).