Carlyle Group LP has made a mint on one of the last leveraged buyouts to get away before Lehman Brothers collapsed. The £650-million ($1.02-billion) exit from Talaris, a maker of money-counting kit, promises nearly 40-per-cent annual returns. Old-school private equity skills can take the credit – Carlyle nurtured a corporate castoff, rode a contrarian trend and its rewards were multiplied by leverage.
The Washington-based private equity firm won’t reveal its returns. But an educated guess is possible. Suppose net debt is about £150-million, or about 10 per cent below the last public numbers from March, 2011. That would value Carlyle and management’s equity at about £500-million – or nearly 3.8 times the £133-million they invested in 2008. Over four years that implies a 39-per-cent internal rate of return, although currency effects and management payouts may dent the final IRR.
Clearly the buyout from banknote printer De La Rue has proved a solid “carve-out,” where private equity reinvigorates a unit that’s languished within a bigger company. Talaris has grown earnings 40 per cent and pushed into new markets such as Brazil.
Betting on cash’s continued relevance has also proved a winner. Hype about the cashless society is just that. The European Central Bank reckons nearly 14 billion euro banknotes were circulating in 2010, almost double 2002’s figure. Talaris’s flagship product is a “cash teller recycler,” a safe-like machine that sorts banknotes. As bank branches ditch glass screens for friendlier open-plan layouts, they often equip tellers’ desks with Talaris kit.
Still, Carlyle’s timing was lucky, and Talaris’s buyer, Japan’s Glory Ltd., is generous. The buyout closed in early September, 2008, and was just 35-per-cent equity-funded, helping to boost returns. Glory is paying nearly nine times Talaris’s current-year EBITDA: way above Glory’s own trading multiple, of about four times, or the 6.6 times Carlyle paid.
Carlyle now boasts two successes from its third European fund, this and Italian luxury group Moncler. On the debit side is an embarrassing foray into Greek chemicals, Neochimiki, now returned restructured to its earlier owner. In weighing it all up, investors will count the cash.