American Industrial Partners: buyout company attacks Sanjeev Gupta
The end of Greensill Capital threatened to disrupt Sanzibugupta’s business empire, and the metal mogul was able to put it in place thanks to the commodities boom and the patience of Credit Suisse.
The weekend businessmen announced a restructuring of their Australian operations with the Swiss bank. The Swiss bank poured more than $ 1 billion into Gupta through a series of supply chain finance funds linked to Greensil. At the same time, its UK metallurgical plant will receive new funding of £ 50million.
The long-awaited deal is essential for the GFG Alliance, a collection of metal rag bags paid for by Gupta with a loan of more than $ 5 billion from Greensil. But seven months after the latter’s failure, the greatest threat to Gupta’s maintenance of the empire came from an unlikely source.
Last week, a group of executives from American Industrial Partners, a valuable and lesser-known private equity firm, arrived at the Gupta aluminum smelter in Dunkirk, northern France.
Dino Cusumano, Danny Davis, Zack Carson and Max Holmes sent a brief message to around 100 workers gathered at a foundry considered the pinnacle of Gupta’s European operations.
Dominating Europe’s largest aluminum smelter will usually be a coup for AIP, which hunts unloved nooks and crannies of the US industrial economy in search of acquisition targets. For Gupta, the loss of the site was a big blow, depriving his empire of an important source of income at 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 company “on the cheap” and took legal action . Responded with a threat.
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 filed an application for administration.
“Many would have been interested in this asset, but the problem was that it was not for sale”, recognized the Dunkirk Smelter as being considered a “strategic asset”. Said a senior official of the French Ministry of the Economy who needed it. ..
The AIP was “quick and ready to pay 100% of the price of the debt to take control,” he said. “There was no objection.”
GFG was an attractive target for AIP. Problems in Gupta’s affairs were exacerbated in May, when Britain’s Serious Fraud Office said it was investigating allegations of fraud and money laundering at GFG. The group denied having cheated.
According to its website, AIP is Rudyard Kipling’s company The jungle Book.. The page with the details of the team (indicating that 30 of the 32 partners are male) has the title “The strength of the wolf is a pack, the strength of the pack is a wolf”. Was done. This is a reference to the collection of stories from 1894. The terms are the opposite.
A team of former AIP bankers and former industry executives with an investor base that spans from the Essex County Council pension fund in the UK to the sovereign wealth fund of the Alaska has built up business across the United States.
AIP companies sell everything from tires and flooring to diapers. Last month he agreed to buy a defense training unit from defense giant Raytheon.
It is a “value-driven” business that acquires businesses that want “transformation”. .. .. Alyssa Fiore, chief investment officer for the Massachusetts pension group, said at a meeting proposing a $ 75 million commitment to the fund in 2019, it likely reflects what the buyout group offered to investors. Declared.
In private equity, “everyone says [their own firm is] Although focused on operations, AIP says it is more reliable than most of the time, ”said an executive who invested in AIP. Instead of buying “a simple business that has already been cleaned up” by other buyout groups, “they are looking for complex situations”.
With around $ 7 billion under management, it’s a minnow compared to the most famous names in the industry like Blackstone and KKR.
According to data provider PitchBook, the $ 406 million fund raised by AIP in 2007 was the best quarter of the performance of its peers. However, the three recent funds are less impressive and rank in the 3rd or 4th quartile.
Nonetheless, Standard Life’s Private Equity Trust committed £ 15million to the fund, and Aberdeen Standard Investments described AIP as a “best-in-class” buyout group in its 2019 report.
AIP crossed paths with GFG before the clash around the Dunkirk plant. Their link stems from the takeover of aluminum company Aleris by metals supplier Novelis in 2018. Channel of $ 2.6 billion.
Competition regulators forced the merged company to sell two Alleris factories. One is in a duffle bag 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 soon after the Greensil failure, three people with knowledge of the issue said. People said Gupta finally signed the first deal to sell the Duffle and Dunkirk factories to a private equity group, including a price deal.
However, negotiations collapsed in July this year. At that point, Gupta was discussing alternative deals with Glencore that would have allowed him to retain control of his European aluminum company. The GFG later said the AIP negotiations collapsed due to “a drop in the total market value that AIP was imposing 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 confirmed the AIP’s proposal. According to two people familiar with the matter, Hambro is currently on a gardening vacation. Hambro declined to comment.
When Gupta met Glencore, AIP bought a second part of the Dunkirk factory debt, this time from BlackRock. This will then allow you to seize the shares of the French company that owns the foundry.
However, despite the boom in the aluminum market, AIP faces challenges in Dunkirk. Dunkirk employs around 630 people and produces 280,000 tonnes of light metal each year.
“As an employee, it is important to us that the AIP does not increase all profits,” said Pascal David, CFE-CGC union leader at the foundry. “We know how [private equity funds] Their aim is to benefit investors. ”
AIP leaders told staff that all work and contracts will be maintained.
Buyout companies are no stranger to the controversy that can arise in a company in difficulty. In 2017, Babcock announced that it had sold its 10% stake to US energy equipment maker Babcock & Wilcox Enterprises, avoiding a sharp drop in value and shortly before problems in the renewable energy sector became apparent. The shareholders claim to submit to court.
AIP received what one of the shareholders suffering from the proceedings described as an “artificially raised” price when the shares were sold. The buyout company secured additional sweeteners by offering the company a $ 176 million emergency loan at a decent 10% interest rate.
The AIP has not been charged with fraud and has not been prosecuted. Babcock shareholders received a $ 19.5 million settlement in exchange for withdrawing their claims against the company. The AIP declined to comment. Babcock declined to comment.
Like the acquisition of the Dunkirk foundry, the investment in Babcock involved a credit company, the flagship subsidiary of AIP. The same unit bought New Jersey-based shipping company Rand Logistics as part of a debt swap in 2017 and then sold its shares to credit investor Oaktree.
Formerly known as Britain’s ‘Savior of Steel’, Gupta celebrated its 50th anniversary in luxurious style last month. Mykonos Island, Greece. In the joy of dealing with Australia last weekend, the AIP’s intervention calmly reminds us of the challenges Gupta still faces.
Owen Walker’s Additional Report in London
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