Private equity backing helps WA businesses pursue strong growth
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Businesses like Calibre Global, Onsite Rental Group and NLV Group have enjoyed strong growth with the support of their private equity backers.
Having deep pockets and a long time frame opens up many opportunities for private equity funds.
It means they can do things like buy a caravan park in a dusty country town and plan to invest up to $60 million upgrading its facilities.
Or fund multiple acquisitions by an engineering business, tripling its staff numbers in less than two years.
And even relatively boring things, like investing in IT systems and back-office functions to support the rapid national expansion of an investee business.
These are just a few examples of what private equity funds are doing with businesses in Western Australia.
Calibre Global
Perhaps the most spectacular growth story has been engineering firm Calibre Global, which was established in Perth in 2002.
It has always been on a rapid growth trajectory – in 2005 it the winner of WA Business News’ Rising Stars Awards, which recognise fast-growing private businesses.
Calibre did not stop there. Two years ago, it paid about $30 million to buy out its joint venture partner in the Calibre Engenium rail joint venture.
At the time, Calibre chairman Ray Munro and managing director Rod Baxter saw even more growth opportunities, and knew that they needed some heavyweight financial backing.
In May 2010, they struck a deal with two private equity funds – US-based First Reserve Corporation and Brisbane-based Connect Resource Services – to become shareholders in the business.
Since then, Calibre has kept its pedal to the metal, completing four more acquisitions, including Melbourne firm Minerva Engineers and Brisbane-based Brown Consulting and Xstract Mining Consultants.
The result has been a near tripling of staff numbers, from 700 in early 2010 to 2,000 at the end of 2011.
It has also reported strong growth in revenue and earnings.
In the year to June 2011, group revenue increased by $92 million to $295 million, while earnings before interest, tax, depreciation and amortisation (EBITDA) was up 37 per cent to $40.1 million.
Last November, when Calibre announced the Brown Consulting acquisition, it said group revenue for the 2012 financial year was on track to exceed $500 million.
“With this acquisition, we continue to build the industry’s most comprehensive, sole-source, engineering and project delivery capability,” Mr Baxter said at the time.
The company’s success has been tied to the rapid expansion of the Pilbara iron ore industry; it has won multiple engineering and construction contracts with industry heavyweights Rio Tinto, BHP Billiton and Fortescue Metals Group.
An important element of its growth has been its rail division – last year, the division had 600 people and was involved in 4,000 km of rail infrastructure projects in various stages of study, design or delivery.
Its former joint venture Engenium will be looking to break into that market, following completion of a two-year non-compete period.
Operating through listed company Resource Development Group, Engenium founders Jeff Brill and Damir Panzich announced in February they were getting back into the heavy rail sector.
Calibre’s east coast acquisitions have given it a more diversified business, by geography and commodity.
Like any business that grows by acquisition, the key to its continued success will be its ability to integrate the new businesses and retain the talent that resides within those businesses.
Next Capital has supported the growth of two businesses targeting WA’s resources sector, although in very different ways.
Onsite Rental Group has grown to become a significant national provider of scaffolding, materials handling equipment, portable buildings, power generators, earthmoving equipment and industrial tools.
When Next bought the Onsite business in 2007, it had one branch in Perth with a limited product offering.
Since then, it has bought national business WASP and Perth business Statewide Equipment Hire, added a wider product range and opened new branches.
Next and Onsite director John White said the opportunities in WA were apparent early on.
“It became very clear to us, soon after we made the (original) investment, that we should be part of what was happening there,” he said.
“Over 60 per cent of our business is now WA-based, which is pretty amazing considering we came from nearly a standing start.”
Mr White said the vendors of the three original businesses had retained equity in the combined Onsite business, with Next being the majority shareholder.
It has taken a long-term view of business growth.
“One of the keys is investing in people and systems, to ensure the business is robust,” he said.
Onsite’s most recent expansion move was the opening of a branch in Onslow, close to where Chevron is developing the Wheatstone gas project.
Discovery Parks
Another Next Capital investee, Discovery Parks, is also an investor in Onslow, having bought one of two caravan parks in the town.
Discovery founder Grant Wilkins has ambitious plans for the site, saying Discovery will spend between $40 million and $60 million buying more land, building accommodation units for workers (as well as tourists), and upgrading the facilities.
Stage one will have 120 rooms, and the master plan envisages 500 to 600 rooms.
“The beauty of private equity is that you are nimble and can move quickly,” he said.
“We’re the largest owner of freehold land in the town; its really first mover advantage.”
Discovery was established in 2004 and, like many property investors, found itself with too much debt when the GFC hit hard.
The business was recapitalised in December 2010, when Next and several existing investors injected $55 million into the business.
Mr Wilkins said four private equity funds were now shareholders. Their financial support, combined with prudent 50 per cent gearing, had enabled the group to spend $60 million last year on acquisitions, mostly in Queensland.
The group currently has 36 sites and is looking to buy more, including in WA.
NLV Group
NLV Group, backed by Malaysian private equity manager Navis since 2007, is also pursuing growth in the resource accommodation sector.
Best known for its lifestyle villages, NLV made its first big acquisition in February when it bought Velocity Villages, which had built a 184-room accommodation village for workers in Karratha.
The Karratha camp has been fully tenanted by Rio Tinto since completion; based on that experience, and the knowledge of Velocity founder Kevin Hughes, who has joined the parent company’s board, NLV is pursuing a number of other growth opportunities in the resources sector.
Growth in that area will provide an added boost for its Perth-based manufacturing division, Ecofit Homes.
In tandem with the growth strategy, NLV has been reviewing its financial structure and funding options.
Viburnum Funds
Pert-based Viburnum Funds holds a diverse portfolio of businesses, ranging from Dome Coffees to stakes in listed companies Amcom and Rubik Financial.
Director Marshall Allen said the group was focusing on merger opportunities for its existing businesses.
“We are increasingly looking at each of the portfolio companies as platforms for further acquisitions,” he told WA Business News.
To this end, one investment, Perth company Surtron Technologies (spun out of listed company Imdex in 2007) merged last December with NZ-based Vause Oil Production Services to create Vautron Group.
The merged group will be backed by both Viburnum and Houston-based investor SCF Partners.
In a similar vein, Viburnum-backed financial services business Finovia recently merged with Entrust Wealth Management.
The merged group will have about $1 billion in funds under management and benefit from the leadership of Entrust’s newly appointed chief executive Grant Vernon, who has a track record of success at Snap Printing and Sealcorp.
Mr Allen said one of the differences between the mandate Viburnum operates for the Wyllie Group compared to a traditional PE fund is that its time frames are quite flexible.
A low profile but globally significant business run out of Perth is Global Advanced Metals, which early this year completed the US$400 million acquisition of US company Cabot Corp’s Supermetals business.
GAM is backed by Resource Capital Funds, a global investor in the resources sector that is jointly headquartered in Perth and Denver.
RCF bought the tantalum and lithium mining businesses of failed mining group Sons of Gwalia in 2007, and since then has been progressively restructuring the two units.