CHAMP Ventures, Frontenac exit H-E Parts to Japan's Hitachi

The investment is expected to deliver a return of around 2x for CHAMP, which came in as a minority investor in 2008, according to a source familiar with the situation. The GP postponed the launch of its eighth fund in March amidst what were said to be succession planning issues within the firm. It will not raise another vehicle, but the core team remains in place to manage out the portfolio.

Hitachi said in a filing that the H-E Parts acquisition was part of a broader plan to establish itself as one of the top three players in the global construction machinery industry, provide efficient solutions at low costs, enhance its value chain and business stability, and boost profitability. In November it bought struggling Australian mining supplier Bradken, which had previously been targeted by several PE investors.

H-E Parts was formed in 2006 when Chicago-based private equity firm Frontenac bought the business - then known as Dom-Ex - from its founding family. The goal was to create the leading supplier of after-market parts and reconditioned parts and equipment to off-highway customers. Given the fragmented nature of the space, M&A was expected to feature heavily in the investment strategy.

CHAMP got involved when Frontenac was looking for a local private equity partner to help build the business in Australia. It paid an initial A$22.5 million ($21 million) for an approximately 30% stake. As of 2014, Frontenac and CHAMP owned 80% of the company, with the rest of the equity spread across management and the owners of several acquired businesses. Frontenac has day-to-day responsibility for operations in the Americas while CHAMP oversees Australia.

Much of H-E Parts' business involves providing new, remanufactured or refurbished components and related services and engineering solutions for hauling trucks, excavators and crushers. Clients include all of the major miners in Australia, North America and Chile - from BHP Billiton to Barrick Gold Corporation - as well as a host of mining contractors. The company also has several smaller business lines, including new and used equipment and on-site services.

A miner buys a truck from an original equipment manufacturer (OEM) such as Caterpillar, Komatsu, Sandvik or Metso with a three-year warranty period. Once this expires, the miner may continue using the OEM for replacement parts or switch to an independent provider like H-E Parts, which may charge a lower price and also offer technical solutions to reduce wear and extend component life.

Financial performance is driven by production volume in the mining sector rather than capital expenditure. As a result, the company has not been as impacted by the commodities downturn as other players in Australia's mining services space. The Hitachi release gives financial information for two H-E Parts entities, although these do not comprise the entirety of the business. H-E Parts is said to generate around $30 million in annual EBITDA on a global basis.

H-E Parts International posted revenue of $110 million in 2015, down from $127.8 million the previous year, while adjusted EBITDA dropped to $7.96 million from $10 million. Net losses widened to $8.84 million from $1.47 million. H-E Parts Australian Holdings saw net income rise to $7.57 million in 2015 from $3.17 million in 2014, while adjusted EBITDA rose to $17.1 million from $13.9 million. Revenue decreased to $127.8 million from $133.9 million.

There are still 8-10 companies held by CHAMP's seventh fund, which has several years to run. Earlier this year an agreement was reached that locks in senior executives for the life of the fund, while giving them the option to consider raising capital under a new name. 

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• Topics
• Australasia
• Trade sale
• Industrials
• Australia
• CHAMP Ventures
• Exit
• Commodities