American Industrial Partners: the buyout firm taking on Sanjeev Gupta

The end of Greensill Capital threatened to disrupt Sanzibugupta’s business empire, and metal mogul was able to put it together thanks to the commodity boom and Credit Suisse’s patience.

Weekend businessmen have announced a restructuring of their Australian operations with the Swiss bank. The Swiss bank has poured over $ 1 billion into Gupta through a series of supply chain finance funds related to Greensil. At the same time, his UK metal plant will receive £ 50m in new funding.

The long-awaited deal is essential for the GFG Alliance, a collection of metal plant rag bags paid by Gupta with a loan of over $ 5 billion from Greensil. But seven months after the latter’s failure, the greatest threat to Gupta’s keeping the empire intact came from an unlikely source.

Last week, an executive group of American Industrial Partners, a valuable and lesser-known private equity firm, arrived at Gupta’s aluminum smelter in Dunkirk, northern France.

Dino Cusumano, Danny Davis, Zack Carson and Max Holmes sent a brief message to about 100 workers gathered at a smelter considered the pinnacle of Gupta’s European operations.

Dominating Europe’s largest aluminum smelter will usually be a coup for AIP, who hunts for unloved corners of the US industrial economy in search of acquisition goals. For Gupta, the loss of the site was a serious blow, robbing his empire of an important source of income in the highest level of metal trading since 2007.

Gupta said AIP’s allegations that his company had defaulted on a private-equity fund were “incorrect” and that AIP was trying to buy the business “cheaply” and took legal action. Responded with a threat.

AIP’s office on Lexington Avenue, New York © Radharc Images / Alamy

New York-based AIP began buying debt for its smelter and GFG’s aluminum plant in Duffle, a suburb of Antwerp, in April, just a month after Greensill applied for administration.

“Many would have been interested in this asset, but the problem was that it wasn’t for sale,” acknowledged the Dunkirk Smelter as being considered a “strategic asset.” Said a senior executive of the French Ministry of Economy who needed. ..

The AIP was “quick and ready to pay 100% of the debt price to take control,” he said. “There was no objection.”

Kipling inspiration

GFG was an attractive target for AIP. Problems in Gupta’s business were exacerbated in May, when the British Serious Fraud Office said it was investigating allegations of fraud and money laundering at GFG. The group denied cheating.

According to its website, AIP is Rudyard Kipling’s Jungle book.. The page with team details (indicating that 30 of the 32 partners are male) has the heading “Wolf strength is a pack, pack strength is a wolf”. Has been done. This is a reference to the 1894 story collection. The terms are the opposite.

A team of former AIP bankers and former industry executives with an investor base that spans the UK’s Essex County Council pension fund to the Alaska sovereign wealth fund has accumulated business across the United States.

AIP companies sell everything from tires and flooring to diapers. Last month, it agreed to purchase a defense training unit from defense giant Raytheon.

It is a “value-oriented” company that acquires companies that want “transformation.” .. .. Alyssa Fiore, head of investment for the Massachusetts pension group, said at a meeting proposing a $ 75 million commitment to the fund in 2019, it probably reflects what the buyout group has pitched to investors. Stated.

Industrial America: AIP companies

In private equity, “everyone says [their own firm is] Although focused on operations, AIP says it’s more reliable than most of the time, “said one executive who invested in AIP. Instead of buying “a simple company that has already been scrubbed” by other buyout groups, “they look for situations with complexity.”

With about $ 7 billion managed, it’s a minnow compared to the industry’s most famous names like Blackstone and KKR.

According to data provider PitchBook, the $ 406 million fund raised by AIP in 2007 was the top quarter of the performance of its peers. However, the three recent funds are less impressive and are ranked in the 3rd or 4th quartile.

Nonetheless, Standard Life’s Private Equity Trust has committed £ 15m to the fund, and Aberdeen Standard Investments described AIP as a “best-in-class” buyout group in its 2019 report.

Crossed paths

AIP was crossing the road with GFG before the clash over the Dunkirk factory. Their connection stems from the acquisition of aluminum company Aleris by metal supplier Novelis in 2018. $ 2.6 billion handle.

Competition regulators have forced the merged business to sell two Alleris plants. One is in a duffle purchased by Gupta and the other is in Lewisport, Kentucky.

The relationship paved the way for GFG to approach AIP about the sale of the Duffel plant shortly after Greensil’s failure, three people aware of the issue said. People said Gupta eventually signed the first agreement to sell both the Duffle and Dunkirk plants to a private-equity group, including a price agreement.

However, negotiations had collapsed by July of this year.By that time, Gupta Discussion with Glencore About alternative deals that would have allowed him to maintain control of his European aluminum business. The GFG later said that AIP negotiations had collapsed due to “a decline in the total market value that AIP imposed on its business.”

Jay Hambro, GFG’s Chief Investment Officer and one of Gupta’s most loyal lieutenants, laid the groundwork for a clash with his boss and upheld the AIP proposal. According to two people familiar with the matter, Hambro is currently on a gardening vacation. Hambro declined to comment.

When Gupta met with Glencore, AIP purchased a second chunk of Dunkirk factory debt, this time from BlackRock. This will allow you to later seize the shares of the French company that owns the smelter.

However, despite the booming aluminum market, AIP faces challenges in Dunkirk. Dunkirk employs approximately 630 people and produces 280,000 tonnes of lightweight metal each year.

“As an employee, it’s important for us that AIP doesn’t boost all profits,” said Pascal David, head of the CFE-CGC union at the smelter. “We know how [private equity funds] Their purpose is to benefit investors. ”

Jay Hambro, Chief Investment Officer of GFG
According to two people familiar with the matter, GFG Chief Investment Officer Jay Hambro is currently on a gardening vacation © Anna Gordon / FT

AIP executives told staff that all work and contracts would be maintained.

Buyout companies are not strangers to the controversy that can occur in a struggling company. In 2017, Babcock said it sold its 10% stake to U.S. energy equipment maker Babcock & Wilcox Enterprises, avoiding a sharp decline in value and shortly before problems in the renewable energy sector became apparent. Shareholders claim to submit to court.

AIP received what one of the shareholders suffering from the proceedings described as an “artificially soared” price at the time of the sale of the shares. The buyout company secured additional sweeteners by offering the company an emergency loan of $ 176 million at a decent interest rate of 10%.

The AIP was not accused of fraud and was not subject to proceedings. Babcock shareholders received a $ 19.5 million settlement in exchange for withdrawing their claims against the company. AIP declined to comment. Babcock declined to comment.

Similar to the acquisition of the Dunkirk Smelter, the investment in Babcock involved a lending company, AIP’s lightship affiliate. The same unit bought New Jersey-based shipping business Rand Logistics on a stock debt swap in 2017 and later sold its stock to credit investor Oaktree.

Formerly known as Britain’s “Savior of Steel,” Gupta celebrated his 50th birthday in a luxurious style last month. Mykonos Island, Greece.. In the joy of dealing with Australia last weekend, AIP’s intervention calmly reminds us of the challenges Gupta still faces.

Additional Report by Owen Walker in London

American Industrial Partners: the buyout firm taking on Sanjeev Gupta Source link American Industrial Partners: the buyout firm taking on Sanjeev Gupta

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