Deal of the Year, European, 2015: Carlyle Group

This is true for the winner of Buyouts European Deal of the Year: The Carlyle Group’s sale of Sermeta, formerly known as Giannoni France. Carlyle’s Europe team invested in Sermeta in June 2010 after pursuing the company since 2009.

Carlyle exited the company after about a four-year hold, earning a 3.3x return on its investment, Carlyle said. 

The core deal team included Managing Director Jonathan Zafrani and Associate Director Laurent Senard. Carlyle didn’t disclose how much it paid for the company. But the Financial Times reported that the firm bought a 65 percent stake in a deal that valued the company at about 490 million euros ($586 million). Carlyle paid half with equity from Carlyle Europe Partners III and half with debt from a syndicate led by Crédit Agricole, the FT reported.

Primarily, Sermeta makes a piece of equipment called a stainless steel heat exchanger that is used in domestic and commercial boilers for the efficient exchange of heat. Sermeta was founded in 1993 by Joseph Le Mer and Rocco Giannoni. The company has served the European market since inception, with its main manufacturing base in western France.

By the time Carlyle became interested in the company, Giannoni was 72 years old and ready to retire. Giannoni and Le Mer, then 65, hired Rothschild to run a sales process, which was a tough prospect with the world still in the grips of the global financial crisis.

Carlyle’s initial bid was rejected, but it came back with another in 2010, offering certainty of financing the deal at a time when closing on financing could be challenging.

The deal closed, Giannoni transitioned out and Le Mer eventually moved out of daily leadership of the company, though he stayed on in research and development. Carlyle brought in some new managers, including appointing a chief financial officer, chief operating officer and a marketing director.

Carlyle saw opportunity to grow Sermeta, which had significant market share in the European market for stainless steel heat exchangers, into other regions such as the United States. It helped that Sermeta’s stainless steel product was aligned with changing energy-efficiency regulations, which gave the company a big jump on the market.

Part of Carlyle’s thesis on the investment was to invest in development of new or enhanced products. One big project was to adapt its European heat exchanger for the U.S. market, which required complying with a different regulatory regime. Along with the move into the U.S., Sermeta expanded its reach into the Asian market under Carlyle’s leadership.

Sermeta also created a new product, an efficient burner range that was a complementary product to the heat exchanger.

Carlyle’s philosophy of “One Carlyle” was highlighted in the Sermeta deal. “One Carlyle” is the idea of the firm as a seamless network of professionals across funds, industries and geographies. In Sermeta’s case, the firm used the knowledge of its team in Italy for initial due diligence because that team had experience in the European boiler market through Riello, an Italian boiler manufacturer. And Carlyle’s China team helped Sermeta understand the Chinese boiler market and access potential business partners in the region.

Other measures implemented under Carlyle’s watch included professionalizing the company’s sales approach and launching a high-powered heat exchanger product.

Through its efforts, Carlyle and company management grew revenue by 27 percent during the firm’s ownership period. Earnings before interest, taxation, depreciation and amortization increased more than 40 percent during the hold period.

Sermeta also managed to reduce its debt load under Carlyle’s ownership.

Last May, Carlyle sold Sermeta to an investment group led by the founding Le Mer family, joined by Bpifrance and Crédit Mutuel Arkéa. Joseph Le Mer had stayed on through Carlyle’s ownership, and was ready to take the company to its next level of growth.

“I wish to build on this growth, and pursue further innovation,” Le Mer said in a statement.