Highlight 2010 – A year in review

Spring 2011
www.silverfleetcapital.com
Silverfleet Capital marks
its 25th year with four deals
2010 was Silverfleet Capital’s 25th year in the private
equity business and we marked that anniversary in the
best possible way, by closing transactions. We made
two new investments, Schneider Group and Office,
which took our current fund up to being 30% invested.
In addition, our portfolio company Kalle completed
a significant bolt-on acquisition in the form of Jif-Pak
Manufacturing Inc. Meanwhile in France, our Paris team
realised our investment in Histoire d’Or, generating a
three times money return from our 100th exit since 1990.
In this annual review we look at each of those deals in
more depth as well as looking forward to 2011 and what
the current year may bring.
Histoire d’Or
turns into a
pot of gold
2010 Highlights
• €140 million invested in 2 new portfolio companies,
Schneider Group and Office
• Current fund 30% invested with all companies
trading at or ahead of plan
• Kalle executes on buy & build strategy with Jif-Pak
bolt-on
• Histoire d’Or becomes 100th exit since 1990
generating 3x money return
Silverfleet Capital puts best foot forward in Office buyout
In the end it all happened very fast.
Silverfleet Capital’s team took only
three weeks from being granted
exclusivity to sign, close and fund the
acquisition of Office. However, the
first meeting with Brian McCluskey,
the CEO of Office, took place over two
years earlier and in the intervening
period we stayed in contact with
him and tracked the remarkable
development of one of Britain’s most
successful retail companies.
Office is the UK’s leading young
fashion footwear retailer, offering
a product range that is mid-priced
and affordable. The business sells
men’s, women’s and sport footwear
and has a broad range of third party
brands such as ‘Converse’, ‘UGG’,
‘Adidas’, ‘Nike’, ‘Vans’ and ‘Supra’ which
it sells alongside its own brands –
‘Office’, ‘Ffor’ and ‘Poste’.
Office earns its credibility by
consistently identifying key fashion
trends and making sure that the
ranges it retails anticipate the demands
of the company’s target market of
15-35 year olds. Read more page 2
An ambitious buy & build programme
paid off for Silverfleet Capital in
our 100th exit since 1990, when in
October we sold our investment in
Histoire d’Or, generating a return of
three times money and an IRR of 27%.
Histoire d’Or is France’s leading
independent jewellery chain. It retails
gold, silver and costume jewellery as
well as watches via a network of stores,
the majority of which are located
in shopping centres throughout
France. In March 2006, when
Silverfleet Capital acquired the
company alongside management,
Histoire d’Or was operating 124
stores of which only four were
based outside of France. Initially
the expansion plan focused on
the domestic French market, but
further stores were added in Belgium
and Italy, bringing the total in 2010 to
over 200. Read more page 2
Silverfleet Capital cuts a deal for Schneider Group California dreamin’ becomes reality for Kalle
Schneider Group is a leading German
B2C (Business-to-Consumer) and B2B
(Business-to-Business) distribution
company with a focus on Germany,
Austria and Switzerland. As a
significant proportion of the sales
of the B2C brands are already made
over the internet, Silverfleet Capital
saw the opportunity to accelerate the
transformation of the company from
a catalogue driven business into an
online retailer. Read more page 3
Kalle, headquartered in Wiesbaden,
Germany, is one of the top global
producers of artificial casings
for sausages, with strong market
positions in the viscose, textile
and plastic product segments.
Silverfleet Capital invested in Kalle
in September 2009, in one of the
largest German buyouts of that year,
with the objective of developing
the company both organically and
through buy & build. Since then Kalle
and Silverfleet Capital had together
reviewed a number of acquisition
opportunities in different countries
but the ideal target was proving
elusive until John Lample, head of
Kalle’s US operation, suggested an
approach to California-based Jif-Pak.
Read more page 3
Highlight – Silverfleet Capital
UK fashion footwear retailer Office
is a perfect fit for Silverfleet Capital
“Silverfleet Capital
demonstrated their
knowledge of, and
commitment to,
growing this business
in a dynamic manner.”
Brian McCluskey,
CEO of Office
Office, the UK-based footwear retailer,
was Silverfleet Capital’s second
purchase of the year. Gareth Whiley,
the Silverfleet Capital partner who
led the transaction, said: “Office is a
great business with a management
team that really understands what
its customer wants. The stores are a
destination for anyone looking for
fashionable shoes – men or women,
from designer look to sports.”
Office first opened in 1981 and
has since grown to 75 stand-alone
stores in the United Kingdom and the
Republic of Ireland and 46 concessions
in House of Fraser, Topshop, Harvey
Nichols and Selfridges. In addition it
has a high-growth internet business.
Sales in the year to January 2010 were
£146m, an increase of over 12% on
the preceding year and produced
an EBITDA of £18.5m. In the current
financial year to January 2011, Office
has continued to perform strongly
with sales on a year to date basis
having increased by 16%.
As well as continuing strong
growth from its existing stores, we
see considerable further rollout
opportunity and significant potential
from an enhanced web-shop. Further
international expansion is also a real
possibility at the right time, based
on the strong relationships that
Office has with its principal suppliers
and building on our own extensive
international experience.
Office has a number of other key
features which make it an attractive
investment for Silverfleet Capital. The
business’s range of both third-party
brands and own brands gives it not
only a defensible offering but also
good profit margins.
3x money from ambitious
buy & build and rollout plan
“Silverfleet Capital has
enabled us to become
the undisputed leader
in jewellery in France.”
Eric Belmonte,
CEO of Histoire d’Or
2
In 2006 when we invested in the
tertiary buyout of Histoire d’Or we
believed that it still had the potential
for further significant growth by
focusing on rolling out stores in
shopping centres in France and
then in neighbouring European
markets. Within 18 months of our
investment, 44 new stores had been
added to the French portfolio, 17 of
which came through the acquisition
of the Charles d’Orville chain.
Thereafter an average of seven stores
per year were either acquired or
opened in France. In October 2007
Histoire d’Or’s franchisee in Belgium
was also acquired, adding a further
eight stores.
After careful analysis and
investigation, it was decided that
Italy was also an attractive market for
Histoire d’Or to operate in under its
existing brand. The first Italian store
was opened in Naples in 2007, and
three years later the company trades
from 11 locations.
We ensured that this buy & build
plan was implemented by making
several individually modest-sized
acquisitions at attractive purchase
prices and then quickly integrating
them. It was supported by a measured
roll-out of new stores, particularly into
the Italian market, which was then new
to Histoire d’Or. As a consequence,
when the jewellery market started
to experience difficult trading
conditions in late 2008, Histoire d’Or
was both financially strong and well
controlled managerially, allowing
the company to withstand the
downturn relatively comfortably.
By October 2010, when Silverfleet
Capital sold its investment, Histoire
d’Or had more than 200 stores and
was operating successfully in France,
Italy, Belgium and Portugal. For the
financial year ending September
2010 the company achieved sales
of €192 million and an EBITDA of
€46 million, representing increases
of around 70% on the levels at the
time of our investment. At our exit
the company provided a strong
platform for further acquisitions
both in France, and elsewhere
in Europe, which was fully reflected in
the price that was achieved.
Highlight – Silverfleet Capital
Silverfleet Capital to support
Schneider Group’s e-tailing ambitions
“Silverfleet Capital
has shown a
comprehensive and
impressive knowledge
of our market.”
Carsten Muuß,
CEO of Schneider Group
Schneider Group, based near Hamburg,
was acquired by Silverfleet Capital in
November 2010. The Group had sales
in the year ended December 2010
of €250 million which generated an
EBITDA of €30 million.
The traditional part of Schneider
Group is a B2B business providing
promotional gifts alongside other
related products. These are sold via
catalogues which are distributed to
around two million small and medium
sized companies across Germany.
The B2B operations are strongly
cash-generative and this cash has
historically been used to develop
the faster growing B2C part of the
company.
The two main B2C businesses
‘Impressionen’ and ‘Conley’s’, launched
in 1995 and 1996 respectively, are
fashion and lifestyle orientated,
marketing brands such as ‘True Religion’
and ‘Belstaff’ as well as ‘Boss’ and
‘Tommy Hilfiger’ alongside Schneider
Group’s in-house designed collections.
More recently the company has
launched the brand ‘Discovery’
which is aimed at a younger
customer group. It has also
launched several web-only shops
such as www.gingar.de and
www.fashmob.de aimed at similar
target markets.
These developments illustrate the
ambitions that Schneider Group has
in e-tailing and we expect the already
significant level of internet sales to
rise rapidly in the coming years.
Kalle nets Jif-Pak Manufacturing Inc
Established in Vista, California, in
1990, Jif-Pak Manufacturing Inc. is a
producer of innovative meat nettings
and casings used principally in the
production of cooked hams. Jif-Pak’s
research and development team
has created many ground-breaking
products that increase the efficiency
and level of automation used by
its clients in the meat and poultry
processing industries.
The business operates from
offices and a 75,000 square-foot
manufacturing facility near San Diego,
California and supplies innovative
products to many of the largest meat
and poultry product manufacturers
in the USA and around the world.
Casing-Net, Ultra-Kote, Spice-Kote
and Flavor-Kote are some of the
key trademarks under which Jif-Pak
currently sells its products.
Neil Mintz, the owner and son of
the founder, was not looking to sell
the business but the attraction of
the larger potential market, especially
in Europe, into which Kalle could
sell Jif-Pak’s newest products, was
key to the tie-up between the
two companies.
As Kalle had traded very successfully
since the Silverfleet Capital led buyout
in 2009, the company was able to fund
the transaction from a combination
of cash and an additional US Dollar
debt tranche of $39m, which
Silverfleet Capital was heavily involved
in negotiating. In the last few days of
2010 the Californian dream became
real for Kalle as a deal was signed
and closed.
The acquisition of Jif-Pak
broadens Kalle’s product range
and significantly increases the scale of
Kalle’s operations in the USA whilst
enhancing Kalle’s claim to be the
most innovative casing and netting
manufacturer in the world.
“We acquire with Jif-Pak
a company which fits
ideally with Kalle.”
Dr. Walter Niederstätter,
CEO of Kalle
3
Highlight – Silverfleet Capital
€4.6 billion returned to Silverfleet
Capital’s investors since 1990
“2.3x money from 100
exited investments is
a track-record we are
justifiably proud of.”
Kay Ashton,
Partner
The successful exit of Histoire d’Or in
October 2010 was another milestone
for Silverfleet Capital in several
ways. This was our 100th exit since
1990, allowing us to return a further
€220 million to our investors and
bringing the total returned to them
over that period to €4.6 billion. This
represents a multiple of 2.3x the total
cost of those 100 investments which
is a track record that we feel justifiably
proud of.
Other recent exits which have
helped to generate these returns to
our investors include two exits that
completed in 2008, namely TMF
which generated proceeds of
€360 million (6.2x cost) and Jost
which generated €240 million
(3.2x cost). Looking back a bit
further, Phadia generated a very
healthy €530 million (4.8x cost) in
2007 while Astron produced €400
million (5.4x cost) in 2006.
A common feature of all these
companies was that during the
period that we were shareholders
they had successfully completed at
least one, and in some cases such as
TMF many more, significant followon acquisitions which contributed
to the overall investment return. In
other words they are all examples of
successful buy & build investments.
2010 has seen the return of portfolio
add-on activity with Kalle’s acquisition
of Jif-Pak which was completed using
only surplus cash and an additional
$39 million debt facility. The Jif-Pak
acquisition also illustrates some of the
key parameters of what we think make
successful bolt-on acquisitions.
The most important feature is
that Jif-Pak has excellent proprietary
technology so not only does Kalle
now have a broader product range
but the deal also brings know-how to
the group. In addition the transaction
was not auctioned but resulted from
Kalle contacting the owners and both
parties recognising the benefits of
combining the two businesses.
In an era where buy & build has
become an ubiquitous expression
we continue to emphasise the
importance of making sure add-ons
are done in the right way for the
right reasons.
2011 and beyond
Predicting the future is never easy
and this is particularly true at the
beginning of 2011. Uncertain times
are generally periods of opportunity
and therefore this is good news for
Silverfleet Capital.
There seems to be sufficient
optimism in the M&A market for
sellers to put businesses up for sale,
alongside sufficient uncertainty
about the economic outlook in many
countries for the level of lending and
the prices being paid for companies
to remain relatively sensible. Clearly
this will not apply to all assets all
the time but the mid-market has
demonstrated that it is deep enough
for careful buyers to find good
businesses to acquire at fair prices and
this has been our experience in 2010.
However, generating an attractive
investment return is now more
than ever based on working with
management teams to enhance the
performance of their businesses. In
businesses that trade directly with
the end consumer the power of the
internet is evident. Customers of
all ages are increasingly willing to
order online from the best websites
they can find, regardless of national
borders. This is accelerating the
pace of change and presenting
opportunities and challenges for our
portfolio companies.
We will continue to look for buy
& build opportunities in which to
invest the balance of our current
fund and further bolt-ons. As ever, our
focus will be on developing not only
bigger companies but also better,
more innovative ones which succeed
by delivering enhanced value to
their customers.
“Generating an
attractive return is
all about working
with management
to enhance the
performance of
the business.”
Neil MacDougall,
Managing Partner
Silverfleet Capital offices
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Silverfleet Capital Partners LLP is a limited liability partnership registered in England number OC321508; authorised and regulated by the Financial Services Authority.
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