OMERS Private Equity, the buyout arm of the Ontario Municipal Employees Retirement System, has struck a deal to acquire ship-servicing firm V.Group Ltd., the pension fund's first stand-alone leveraged buyout in Europe.
The price tag is $520-million (U.S.) including debt, putting it in the sweet spot for OMERS's London office, which has been hunting for mid-market deals in the $200-million to $2-billion range for the past two years.
OMERS swooped in after V.Group's talks with Charterhouse Capital Partners fell apart, according to The Financial Times. Charterhouse had bid for V.Group after its current owner, Exponent Private Equity, put the company up for auction.
The acquisition comes at a time of renewed interest by Canadian pension funds in the private equity market, which cooled this year after heating up in the second half of 2010. Last year, Canadian pension funds scooped up assets in places such as Australia and the U.K., including the purchase of Tomkins PLC for $5-billion by the Canada Pension Plan Investment Board and Onex Corp. It made them some of the most active buyers around the world, until the pool of potential deals dried up early this year.
Canadian pension funds, however, have been active again over the past few weeks, a sign that the market is recovering.
OMERS had to wait for a transaction small enough to manage on its own. It was also waiting for a high-quality asset, said managing director Mark Redman, who is based in London. With Isle of Man-based V.Group, he thinks OMERS is getting just that.
Although shipping is generally considered a cyclical sector, Mr. Redman says analysis of shipping flows over decades shows a consistent track record of growth. As well, V.Group is an external servicing firm, to which shipping companies outsource repairs and maintenance. Only 12 per cent of ship servicing is outsourced, so OMERS sees lots of room for expansion - and believes V.Group, the world's largest ship-servicing company by sales, is well-positioned to benefit.
Now that it has a big pension fund behind it, V. Group will have the financial wherewithal to seek organic growth and acquisitions in emerging markets. "As a global leader operating in robust and growing segments of the market, we believe the future opportunities for V.Group are extremely attractive," Mr. Redman said.
OMERS has agreed to keep the company's current management in place, including chief executive officer Clive Richardson, a sign that OMERS approves of management's track record.
"V.Group has an attractive and differentiated outsourcing-based business model and is led by an exceptional management team," Mark Redman, senior managing director of OMERS Private Equity in Europe, said in a statement.
Although OMERS, with $5.5-billion in assets around the world, could have paid cash, it secured financing for the deal from RBC Dominion Securities, which also served as financial adviser.
The buyout is OMERS's second private-equity deal in Europe, although the first in which it acted alone. In 2009 the fund was a junior partner alongside Towerbrook Capital Partners, in the purchase of corporate lender Haymarket Financial.
The recent flurry of deals by Canadian pension plans includes Ontario Teachers' Pension Plan's purchase of Babcock & Brown Gates Parking Investments LLC, a fund set up to invest in parking lot operators across North America. (The fund's principal investment is Vancouver's Imperial Parking Corp., better known as Impark.) The Canada Pension Plan Investment Board and the Public Sector Pension Investment Board were also recent investors alongside Apax Partners in a $6.3-billion buyout of Kinetic Concepts Inc., a health-care company.