Deal in focus: Electra reaps 3.8x on Nuaire sale

Alice Murray
05 August 2015

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Electra Private Equity identified ventilation systems as a growth market back in 2007, propelled by new regulations in the construction industry. Eight years later, its exit of UK business Nuiare generated a near-4x return. Alice Murray examines the cool heads behind the deal

Electra Private Equity recently sold ventilation business Nuaire to Polypipe Group for £145m, generating a 3.8x return and an 18% IRR after an eight-year holding.

Following completion of the deal, Electra will receive proceeds of £72m. The value of the deal – £145m – represents 11.4x Nuaire's Ebitda.

The sale process was unsurprisingly a competitive one, as private equity firms scour the market for quality assets. The divestment attracted interest from international and trade buyers, as well as a strong showing from private equity firms, according to Electra.

Regulation for the nation
In 2007, when Electra acquired the company, the GP had identified strong growth prospects for the ventilation market due to mooted regulations. These rules were introduced in 2010, demanding that new buildings must provide adequate means of ventilation.

The legislators argued that, as new houses are better insulated, they require more ventilation. Electra noted that this would boost the growing trend for energy-efficient ventilation systems, which Nuaire's products are focused on.

Electra invested £23m in Nuaire's 2007 management buyout, which was reported at the time to be worth around £80m. Bank of Ireland and RBS provided a £40m debt facility consisting of three tranches to support the deal.

Electra acquired the company from previous backers ECI Partners, which first invested £15m in Nuaire's £38m management buyout in 2004. According to unquote" data, ECI purchased an 84% stake in the company, and Bank of Ireland provided a £22.5m debt package.

Having invested in 2007, and with the business closely linked to the UK construction market, Electra had to realign its exit horizon when the downturn hit in 2009. According to Charles Elkington, the partner at Electra who led the deal, Nuaire remained robust throughout the recession and traded respectably.

Big fan of business
Under Electra's stewardship, Nuaire has expanded its customer base, especially in the residential market. This has led to revenues increasing by 80% and profits rocketing by 120%. According to Elkington, the GP supported Nuaire's growth by investing in products and people, while expanding the company's product portfolio to address the ventilation market more broadly.

Furthermore, Electra oversaw the sale of Nuaire's French subsidiary, and supported the evolution of the company's management team, with former CEO Alan Wright being succeeded by Mark Huxtable.

In February last year, Electra oversaw the refinancing of Nuaire's debt. According to Elkington, by that point the company had almost de-geared, so the GP was able to moderately re-gear the business, which generated a dividend for Electra.

Climate-controlled
Nuaire is a manufacturer of ventilation equipment for commercial and residential use. Its products are focused on reducing energy consumption and carbon emissions. The company counts 5,000 customers in the UK and overseas. In the UK, its customers are predominantly contractors and building consultants.

The company operates via three business segments. Its commercial segment, which represents 56% of the company's revenue, includes ventilation systems and energy-efficient products for new builds and refurbishments. Typical customers include offices, schools, hospitals, hotels, retailers and leisure outlets.

Its residential segment, which makes up 28% of Nuaire's revenues, focuses on local authorities, and national, regional and local house builders. Products in this group tend to be more sophisticated ventilation systems and unitary fans.

Nuaire's international segment, which generates 16% of revenues, supplies high-temperature axial fans as well as selected products from the residential and commercial divisions. Products are sold through third-party distributors in the Middle East and Europe.

Nuaire is headquartered in Caerphilly, Wales, and employs 450 people.

For the 12 months to June 2015, Nuaire generated sales of £63.5m, and EBITDA of £12.8m. This represents growth of 18.8% and 29.4% from last year's figures, respectively.

People
Electra – Charles Elkington
Nuiare – Mark Huxtable

Advisers
Vendor – KPMG (Corporate finance); Taylor Wessing (Legal).