Palatine sells Vernacare to HIG

Katharine Hidalgo
18 February 2020

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Palatine Private Equity has sold healthcare products manufacturer Vernacare to HIG Capital.

HIG is currently investing from Growth Buyout Equity Fund III, which closed on $970m in October 2018 and was 3% deployed as of September 2019.

Palatine hired Clearwater to explore a sale in December 2018, according to Unquote sister publication Mergermarket. Sources said a potential bidder was likely to work off revenue rather than EBITDA multiples, according to the report. Unquote understands the company's EBITDA is £10-15m.

Palatine partner Andy Lees told Unquote: "We started looking at trade buyers and picked a small number of PE houses." At the end of the process, around three private equity houses were looking at the deal, until Palatine gave HIG exclusivity for the deal in Q4 2019.

Following the transaction, the existing management team will be joined by James Steele, who was previously CEO of Attends Healthcare. Lees said: "HIG partnered with James, who had a good vision for the business, plus there was a management succession issue and James was the perfect solution. That relationship helped HIG in terms of their deliverability."

The incoming and outgoing CEOs, as well as the management team, will retain minority stakes.

During Palatine's holding period, the company expanded internationally and doubled its overseas turnover to more than £20m, according to a statement. The company expanded further into the Nordic region, the Netherlands, Japan, India, France and some South American countries.

This is the second exit from Palatine Private Equity Fund III following the sale of Westleigh Partnerships to Countryside Properties.

Previous funding
In 2015, Palatine backed the management buyout of the company, drawing equity from Palatine PE Fund III. The fund closed on £220m in 2015.

Vernacare acquired HCS in 2017. Lees said: "We were able to develop real synergies and it gave the business scale. Ultimately, we doubled EBITDA from the acquisition and from revenue growth."

Vernacare repaid existing debt facilities provided by Tosca Debt Capital in September 2019. New facilities were provided by Pemberton Capital Advisors, with HSBC continuing to provide working capital facilities and everyday banking. The refinancing allowed Palatine to return capital to its investors.

Company
Established in 1964, Vernacare is a healthcare products manufacturer, with a focus on infection prevention. It produces single-use toileting systems and provides healthcare institutions with toileting and bathing products. With sales in excess of £60m and EBITDA of £10-15m, the business employs more than 250 people in its Chorley headquarters, its manufacturing plant in Bolton and its site in Toronto.

People
Palatine Private Equity – Andy Lees (partner).
Vernacare – Matt Miller (CEO).

Advisers
Vendor – Clearwater International, Phil Burns (corporate finance); DLA Piper, Yunus Maka (legal).
Equity – Allen & Overy (legal); Cavu Corporate Finance (corporate finance).
Management – Brabners, Tony Harper (legal); RSM, Colin Smyth (tax); Avicenna Capital, Ali Sharifi (corporate finance).