Deal of the Year, International, 2017: Carlyle Group, Groupe Marle

When Carlyle Group sold its 80 percent stake in Groupe Marle in January 2016, the firm handed over control of a company transformed from a specialty family business into an international player.

The deal dates back to 2009, “a period which people have forgotten,” said Vladimir Lasocki, a managing director with Carlyle in Europe. “You couldn’t get debt. You couldn’t get deals off the ground, either.”

It was in this climate that Bernard Marle of Nogent, France, decided to sell the medical-implant-forging business he’d run for 30 years, having inherited it from his father. Marle, 62 and looking to retire, hired a seller to help him, the son of the local tavern owners.

“I got wind of it,” Lasocki said, “and I have to say I smelled that there was something interesting.”

Lasocki met with Marle, “and that day we finished at one o’clock in the morning, having shared a few good bottles of wine.” It was important to build trust, Lasocki said, given the emotions involved in selling a family shop: “We sealed a very good rapport on the first day, literally.”

Three months later they had reached an agreement. Financing was secured from two French banks, CIC Est and LCL, with Marle accepting some earn-outs to facilitate the transaction. “You have to straddle Wall Street and Nogent in eastern France,” explained Lasocki, who is French himself. “You have the cultural aspect, and this is not specific to France. It’s specific to every market.”

Carlyle invested in Marle through Carlyle Europe Technology Partners II, a fund launched in 2007 with 530 million euros ($565.5 million) of capital. The deal was valued at 70 million euros. Once in control, the firm pursued a three-pronged strategy to build out the business.

First was moving beyond forging into the rest of the implant-manufacturing process. Producing a finished hip product requires three steps: forging (the most complex and highest-value), machining (which gives it its final shape) and finishing (which can include coating, polishing and packaging).

To capture the full price of a finished stem (about $200), instead of just the share claimed by forging (around $70), CETP added machining and finishing capabilities to Marle’s operations.

“As we did that,” Lasocki said, “we basically had to open new factories and buy specialist manufacturing companies,” including Finortho SAS.

Secondly, CETP wanted Marle to expand into implants other than hips. “But to make a hip, you forge; to make a knee, you cast,” Lasocki explained. The shape is more complex and a different metal is used. So Marle acquired ATS, a casting operation, to offer its clients knee condyles, tibial plates and shoulder stems as well.

Once Marle had become an end-to-end orthopedic manufacturer, the final step was to expand internationally. With everything under one roof, the company could present itself to foreign buyers as a one-stop shop, able to simplify their supply chains.

Marle picked up customers in previously untapped markets including the United States, Russia, Japan, China, Korea, Brazil and the United Kingdom. “We’ve become a business that can do a lot more than trade with other customers in Europe,” Lasocki said.

Lasocki’s use of the first person is noteworthy: Although Carlyle sold its 80 percent interest in Marle to IK Investment Partners, in a 350-million-euro deal, the firm is reinvesting as a minority shareholder.

Retaining a stake was “an option we had which we decided to exercise because we think it’s a good investment,” said Lasocki, who remains on the board. “We held the company for seven years. We just had to sell because it’s part of what we do, but it doesn’t mean we don’t think there’s a good ride ahead of us.”

Hot forging of a cobalt hip stem. Photo courtesy Groupe Marle.