Kelvin Hughes (United Kingdom) - Nov 2007

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01 November 2007

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ECI Partners has acquired navigational products specialist Kelvin Hughes in a £52m management buyout from Smiths Group Plc. The purchase price comprises £48m which was paid in cash on completion of the purchase and a deferred payment of up to £4m depending on certain conditions being satisfied. ECI’s investment was supported by senior debt supplied by Royal Bank of Scotland and unwarranted mezzanine financing provided by Capital Source Europe Ltd. ECI holds a majority stake in the business which it had been tracking for more than a year. After completing the buyout of Racal Acoustics, a provider of communications equipment to the defence industry in 2005, ECI looked for other opportunities in this space. As a result of this, it examined Smiths’ portfolio and approached it in advance of the process. When KPMG was appointed five months ago to run an auction process to facilitate the disposal of Kelvin Hughes, ECI was well-positioned to win the deal. It competed against interest from other private equity buyers and trade players and completed the deal in two months. ECI was attracted to the deal due to the combination of a Kelvin Hughes’ solid core navigational charts business, which is subscription-driven, and the high growth opportunities offered by new products such as Sharpeye. Additionally, the increasing legislative requirements on mandatory safety, situational awareness and navigational equipment are fuelling demand for its products.

Company

Ilford-based Kelvin Hughes traces its roots back to 1750. It serves the naval and commercial marine sectors, supplying them with advanced navigation systems and services. Its products include radar sensors and display technology, voyage data recorders, electronic chart systems and integrated bridge systems, and are in service with more than 30 navies around the world. In addition, through ChartCo, it provides a unique and cost effective means of providing bulk data to ships via satellite. It has also developed and produced the world’s first solid state marine navigation radar, Sharpeye which brings military-grade radar performance to the commercial marine marketplace. Under ECI’s ownership, Kelvin Hughes will increase its investment in technological innovations. The company employs approximately 300 staff and generates profits of £6m on a turnover of £60m.

People

Ken Lindsay, Chris Warren and Tom Wrenn led the deal for ECI. Lindsay joins the Kelvin Hughes board. Russell Gould is the managing director of Kelvin Hughes. Paul Wood and Mark Ward worked on the deal for Royal Bank of Scotland. Patrick Fear, Jose Mestres and Johnny Carew Pole arranged the mezzanine financing for Capital Source Europe.

Advisers

Equity - Andeman Advisory Services Plc, Edward Hickman (Commercial Due Diligence)Equity - Deloitte, Pauline Biddle (Financial Due Diligence)Equity - ING Corporate Finance, Janette Brown, Thomas Roelens (Corporate Finance)Equity - SJ Berwin LLP, Richard Lever (Legal)Equity - SJ Berwin LLP, Stephen Sweeney (Legal)Management - Addleshaw Goddard, Andrew Carpenter, Christopher Taylor, Ed Jenkins, Richard Hodgson (Legal)Management - Liberty Corporate Finance, Simon Hill (Corporate Finance)Vendor - Allen & Overy , Ben Jacobs, Eileen Kelliher (Legal)Vendor - KPMG, Andy Hales (Corporate Finance)