BluGem sells DMC Group to Lion Capital

Alessia Argentieri
14 February 2019

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Lion Capital has acquired needlecraft and yarn specialist DMC Group from BlueGem Capital Partners.

Unquote understands that the company has an enterprise value of around €160m, which equates to around 9.5x its 2018 EBITDA.

According to a source familiar with the situation, the GP used its €2bn fund Lion Capital IV to finance the deal. The acquisition will initially be all-equity fuelled but the GP will refinance a portion in the coming weeks. Following the deal, the management team led by CEO Justin Wraight will stay on with the business.

Bluegem hired investment bank Baird to sell the business in an auction process that saw Equistone, Lion and Comvest-backed Spinrite in the final round, according to Unquote sister publication Mergermarket.

The sale ends a three-year holding period for BlueGem and generated a 2.7x return and an IRR of 55%, according to the GP.

This deal represents the first exit completed by Blue Gem II, which closed in 2015 on €370m. Unquote understands that the vehicle is now around 85% deployed. BlueGem is planning to raise its third fund in the second half of 2019, to continue the strategy deployed with its previous vehicles.

BlueGem established the DMC Group in August 2016 as a consolidation platform for complementary needlecraft brands, beginning with the acquisition of Alsace-based textiles group DMC, bought for around €40m. The acquisition was made through Cotton Holding – a newco created for the transaction – and was funded by equity and debt, with a more significant portion of equity from BlueGem II. BlueGem wholly acquired the group's capital, while previous investors Krief Group (40%), the management team (10%) and several Alsace-based investors (50%) exited the company.

Subsequently, the GP bought yarn specialist WATG (Wool and the Gang) and merged it with DMC. In 2017, the group acquired British knitting kits and yarns producers Sirdar and Tilsatec and opened a London head office to consolidate DMC Group's position in the European needlecrafts sector.

Company
The DMC Group comprises a portfolio of European brands operating in the needlecraft and yarn sectors, composed of DMC, WATG (Wool and the Gang), Sirdar and Tilsatec. The group sells its product in more than 100 countries worldwide and generated EBITDA of €17m from revenues of €91m in 2018.

Founded in Mulhouse, France, in 1746, DMC specialises in manufacturing embroidery cotton threads available in 465 different colours and sells around one million skeins per day. WATG produces knitting kits and premium yarns. The brand was founded in Colette, France, in 2008, and subsequently launched in New York and Tokyo in 2009. It was featured several times on the catwalks of London Fashion Week and frequently collaborates with fashion designers.

Founded in 1880, British brand Sirdar produces hand-knitting yarns, with a strong market position in the UK and a growing presence in the US, while Tilsatec specialises in high-performance cut-resistant yarns. Until 2017, Tilsatec operated as part of Sirdar, however operations for the two brands have since been separated and Tilsatec today is a standalone business within the DMC Group portfolio.

Overall, the combined group employs 404 staff and generates 50% of its revenues in Europe, 35% in the US and 15% in Asia. It has a production facility in Mulhouse, logistic centres in France, the UK, the US, Singapore and Japan, and commercial offices in Spain and Italy.

People
BlueGem Capital Partners - Marco Capello (founder, managing partner).
Lion Capital - James Cocker (partner).
DMC Group - Justin Wraight (CEO).

Advisers
Vendor – Baird (corporate finance); Baker & McKenzie (legal); LEK Consulting (financial due diligence).
Acquirer – Proskauer Rose (legal); PwC (financial due diligence); DLA Piper (legal); Pragma Consulting (commercial due diligence).