First Reserve takes high Calibre in Oz

The element that is becoming more widely appreciated is the range of services businesses that make for a fertile field of investment possibilities. AVCJ sources have often remarked that this is the best approach for private equity firms seeking to ride the current resources boom.

US-based First Reserve, the world’s number one specialist private equity house in the mining, metals and energy spaces, has followed this maxim with the mid-May acquisition of a majority interest (reportedly in excess of 75%) of West Australia-based Calibre Global, a leading Australian engineering and project delivery firm.

An excellent platform

“We view Calibre, especially the platform that the owners and existing management team have been able to grow over the past eight years, as an excellent foundation for a broader opportunity to provide services to resource production companies,” Alex Krueger, First Reserve managing director and team leader on the deal, told AVCJ from his London office.

The price paid was not disclosed. But First Reserve typically targets investments in global natural resources and energy companies in the $200 million-$1 billion range. However, other sources indicated that the deal value here may have been somewhere over A$100 million ($86 million).

The group was joined by Brisbane-based investment firm Connect Resource Services (CRS), which took a 2% slice in Calibre.

CRS is a partnership between First Reserve and two long-experienced managers in the Australian mining industry. Acquisitions of the Calibre sort were the rationale for its founding. CRS specializes in business evaluation and investment management in the Australian mining market.

Previously Calibre was controlled by co-founders Ray Munro and Dave Walker. The latter has sold down his stake but will remain associated with the business as a consultant. Munro, on the other hand, retains a ‘substantial’ stake, and he and managing director Rod Baxter will remain on the board and be joined by five new members, two from First Reserve and three from CRS.

A complementary fit

Commenting on the acquisition, Baxter said, “We see a very complementary and value accretive fit with this deal, which will enable us to pursue our growth and acquisition strategy while retaining our commitment to excellence in project delivery.”

First Reserve and CRS are proactively supportive of Calibre’s current strategic focus of providing engineering and project management services to the bulk commodity sectors of iron and coal, in which they plan to extend their reach, along with rail infrastructure. Calibre will be the key consolidation nucleus for this strategy. As an example, Calibre recently bought the remaining 50% of the Calibre Eugenium Rail Joint Venture, which will be re-branded as Calibre Rail.

This business, founded in 2005, is one of the largest heavy haul rail engineering companies in the country. Since that time it has delivered most of the heavy rail infrastructure in West Australia, particularly vis-à-vis the state’s major northwestern resources projects.

Already a solid growth success story (over 100%) in the Calibre stable, their recent taking of full ownership is seen as key in creating a fully integrated mine-to-port service.

The macro view

From First Reserve’s perspective, their investment in Calibre is one of a series of investments in the Australian mining industry. Other investees include Whitehaven Coal, API and Belvedere Coal.

According to Krueger, the common driver in all these deals is that: “…First Reserve has a long history of investing heavily in service and manufacturing businesses that support the energy value chain. So this is yet another example of where we see very compelling macro trends, especially in the bulk commodity demands coming out of China and India, much of which is being met by the Australian resource base. [Calibre Global] is a company which is critical in helping producing entities unlock access to greater volumes and expanding production capacity.”

Obviously, these are long-range scenarios. And just as obviously, First Reserve, being a private equity investor, has exit timelines to consider. Typical funds are up to ten years in duration, and exits are over a three to five year period, but the effecs of the GFC are tending to lengthen these holding periods and the wait for exits, while the cyclical nature of the natural resources and energy sectors may be having a simiilar impact. Firms exposed to the resources and infrastructure areas already tend to have longer holding periods that typical corporate private equity funds. The IPO is, however, the preferred exit route.

“What we’re trying to build is a broader, larger service provider to mining companies, with the functionality and scale needed to be attractive to the public markets. And in the end this is a people business; that’s why we’re so excited to be working with Calibre’s management team and CRS,” Krueger told AVCJ. 

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• Topics
• Australasia
• Industrials
• Infrastructure
• Buyouts