U.S. private equity firm Crestview Partners stands to make a bundle on this week’s sale of Canadian auto parts maker Stackpole International, according to a source with knowledge of the matter.
Hong Kong’s Johnson Electric Holdings announced on Monday it will pay up to $867 million (US$659 million) for Stackpole, a supplier of automotive engine and transmission pumps and powder metal components. The deal, which will retire the company’s debt, is expected to close later this year.
Johnson is buying Stackpole from SI Investors LP, a partnership led by New York-based Crestview.
With the deal’s closing, Crestview, which has an 80 percent stake in the business, is expected to see roughly twice its investment, the source told peHUB Canada. That translates into a more than 30 percent internal rate of return, the source said.
Crestview declined to comment.
Stackpole has spent less than two years as a portfolio investment of Crestview and CITIC Capital, which partnered in the company’s acquisition from the Sterling Group in October 2013. The deal was valued at about US$500 million.
At the time, the company was riding an expansionary wave created by the turnaround in North America’s auto industry. During Sterling’s period of ownership, Stackpole’s growth outpaced growth in automotive production, with EBITDA increasing more than 80 percent, the PE firm reported.
The business continued to expand under Crestview, Partner Alex Rose said. Rose, who with Tom Murphy, a Crestview co-founder, sits on the board of directors, said the firm committed resources to an international growth plan for Stackpole focused on opportunities in Europe and Asia.
Crestview expected to be majority owner when the long-term benefits of the global strategy were realized: “We weren’t looking for the door,” Rose said. However, market dynamics changed as a result of consolidation in Stackpole’s sector. This prompted multiple offers from strategic buyers, the best of which came from Johnson.
Rose said Johnson’s acquisition of Stackpole is synergistic, as their “adjacent products complement each other.” The Chinese electric motors maker also sees an opportunity to enhance its presence in North America.
As a Johnson affiliate, the company will continue to be “autonomously run,” he said. It will also keep its headquarters in Ancaster, Ontario.
Stackpole has been led by President and CEO Peter Ballantyne since it was carved out of Tomkins by Sterling in August 2011. It was briefly held by Onex Corp and the Canada Pension Plan Investment Board (CPPIB), which jointly acquired Tomkins for US$5 billion the year before.
Stackpole’s consolidated revenues for the year ended December 31, 2014 were $487 million, excluding sales from a joint venture in Asia, Johnson noted in a statement. About 80 percent of consolidated sales were made in North America.
Stackpole is Crestview’s first investment in a Canadian domiciled business.
Photo courtesy of blue automobile courtesy of Shutterstock
Photo of Alex Rose courtesy of Crestview Partners