HgCapital Trust

SLV is one of the fastest growing providers of indoor and outdoor lighting in Europe. Its vertically integrated model delivers competitive advantages in development, sourcing, logistics and distribution. It is able to offer high-quality products at attractive prices with leading levels of service.

SLV is part of a recession resistant, niche growth market with a protected business model. HgCapital’s sector expertise meant that we could quickly understand SLV’s business and pinpoint the sources of outperformance:

• Precise understanding of customer needs leads to long-lasting relationships
• A differentiated model across the value chain makes SLV lean and effective
• Outsourced production with in-house know-how developed from strong supplier partnerships maintains quality
• Strong culture and a well-known brand amongst customers
   

In 2006, SLV’s founder decided to step down. HgCapital was shortlisted by the sellers due to our track record amongst German ‘Mittelstand’ companies such as Schleich, the German toy producer.

Our experience meant we were quickly able to establish a rapport and demonstrate that we understood SLV’s business, winning their trust and showing how strongly we believed in its potential to develop at home and internationally.

Our proposition allowed for re-investment by shareholders and management who, like us, believed in SLV’s future. Therefore, although we did not offer the highest bid, we were chosen to take SLV forward.

We regarded SLV as a “hidden champion” of the Mittelstand, a successful niche player which had grown faster and with higher margins than its competitors. All we needed was to be comfortable that this could continue and that there was no intrinsic reason for a margin decrease.

Sales growth was achievable given the relatively low market penetration at that time and SLV’s record of successfully entering international markets. Margins were sustainable due to multiple suppliers, disciplined pricing and cost approaches, product portfolio monitoring, and efficient operations with low marketing spending and overheads.

Finally we were keeping an experienced management team that had built and refined SLV’s business model over years, giving us the comfort to improve strategy and successfully take SLV to the next level.

Our role was to help management harness the business’ potential and to bring our experience from other Mittelstand buyouts to further professionalise SLV:
 

• We helped SLV gain control over marketing and sales in its most important international markets by acquiring majority holdings in crucial distributors
• We aided the development of a strategy for entry into a number of new European markets and the US
• We supported business function expansion, investment in warehouse space and equipment to increase efficiency, and the hiring of an experienced CFO to establish more robust reporting and control processes
   

SLV proved to be resilient through the recession, driven by market share gains, a scalable platform, cost discipline and control over its value chain.

Since we acquired SLV in August 2007 the company has consistently outperformed. We feel that under HgCapital’s ownership SLV has become a stronger and more competitive company, benefitting its employees, its customers, and its owners.

Between 2007 and 2010:

• EBITDA increased by 34%
• Revenues grew by an average of more than 8% p.a.
• Margins rose by 3%
• Jobs increased from c. 155 to c. 230

SLV’s strong performance through the cycle led to approaches from 2009 onwards. A sales process began in 2010 with the goal of finding an investor who could help drive future growth by bringing new skills and experiences to bear.

We chose Cinven who agreed to acquire SLV in April 2011 delivering a return for our investors of 4.0x and an IRR of 45%. There remains plenty of performance to come from SLV in terms of organic growth and geographical expansion.