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Employees score on KKR’s $3bn sale of C.H.I.; Water Street and JLL Partners team up on Eversana

KKR sells C.H.I. for $3 billion.

Happy Monday, Hubsters. MK Flynn here in NYC, back from London and back on the Wire.
$175k average payout for truck drivers and hourly workers. KKR just announced an exit that not only gives the firm outstanding returns but also shows the impact of employee ownership, long advocated by Pete Stavros, co-head of Americas private equity.

The firm is selling C.H.I. Overhead Doors, a manufacturer of garage doors, to Nucor Corp. in a transaction valued at $3 billion. The sale represents one of KKR’s largest returns in recent history, at 10 times the original equity invested, inclusive of distributions. All C.H.I. employees will receive a substantial cash payout on their equity in the company.

The deal offers strong evidence in favor of KKR’s thesis that employee ownership and engagement is “a key driver in building stronger companies and driving greater financial inclusion.”

On the financial side, C.H.I. grew impressively under KKR’s ownership. Since the firm invested in 2015, KKR oversaw “a dramatic operational transformation of the business,” according to the deal announcement. “On an organic basis, EBITDA increased almost 4-fold. C.H.I.’s EBITDA margin steadily improved over a seven-year period, ultimately increasing by more than 1,400 basis points from 21% to well over 30%. Revenue grew by nearly 120% organically, enabled by investments in the existing manufacturing facility in Illinois and the construction of a second plant in Indiana. Operating improvements covered nearly all aspects of the business ranging from procurement and scrap reduction to labor productivity and net working capital optimization.”

All 800 employees of C.H.I. will benefit financially too. At exit, in addition to approximately $9,000 in dividends received since 2015, hourly employees and truck drivers will receive, on average, approximately $175,000 as a payout on their equity – with the most tenured employees earning substantially more. To help them manage their earnings, employees will receive 12 months of pre-paid personal financial coaching and tax preparation services through Goldman Sachs Ayco Personal Financial Management and Ernst & Young.

“C.H.I. is a powerful testament that creating a culture of ownership works,” said Stavros. “We have seen first-hand the impact that the ownership mindset can have on individual owners and the business. When you invest in employees, positive results will follow.”

Ownership works. Employee ownership is growing at private equity-backed companies. Back in April, KKR and more than 60 partners launched a nonprofit called Ownership Works, with a mission to increase prosperity by sharing ownership with all workers.
Other investment firms participating include Apollo, Ares, Goldman Sachs, Silver Lake, TPG, Warburg Pincus. Pension funds, such as California Public Employees’ Retirement System and Washington State Investment Board, are also involved. The participating PE firms have pledged to institute employee ownership at a minimum of three portfolio companies by the end of 2023.

Stavros, who founded the nonprofit, is the son of a road grader for a construction company who sought but never achieved profit-sharing, he told the Wall Street Journal earlier this year. He and his wife, Lindsay Stavros, donated $10 million to Ownership Works.

More capital. Water Street and JLL Partners  closed one of the rare types of continuation fund deals – a joint process that gives the firms more time and capital to grow the asset called Eversana, which provides commercialization services to the life sciences industry, Buyouts’ Chris Witkowsky reports.

The deal, which is valued at $1.75 billion and closed in March, “is among a slew of single-asset secondaries GPs are using to extend their holds over certain assets where they see continued growth,” Chris writes. “Single-asset continuation fund deals have become so popular that several mid-market investment banks have hired or are seeking talent to advise on such transactions.”

Other large deals this year include KKR’s single-asset process for Internet Brands and Warburg Pincus’ GP-led deal for Duravant. GP-led deals represented roughly 51 percent of the $134 billion of total deal volume in 2021, according to Evercore’s 2021 volume report.

What does private equity bring to the table? I’ve received a lot of responses to the questions I posed last week in the Wire about the nature of private equity.

How much of PE is financial engineering versus true company building? What are the benefits of the private equity model? I’ll be including readers’ comments in the Wire later this week. If you’d like to weigh in, send me your thoughts at mk.flynn@peimedia.com.

That’s all for now.

Until tomorrow,

MK