Deal focus: Allegro exits transformed Vulcanite

When Allegro Funds bought Australian-based Vulcanite Group in 2011, it was a corporate orphan in Chess Industries. Although profitable, the division's success primarily derived from an outsourced manufacturing strategy. In face of capital constraints, Vulcanite was struggling to grow further in the international market.

Allegro typically invests in businesses facing headwinds and uses its capital and expertise to roll-out a transformation program. "For Vulcanite, it was about a world-class manufacturing capability with scale and improved product quality, enabling us to expand significantly our international reach to American and European customers. That appeals to multinationals who see this capability as strategically valuable," says Adrian Loader, managing director at Allegro.

Last week, one of those multinationals - the ContiTech division of Continental - bought Vulcanite, generating an approximately 2x money multiple for Allegro. ContiTech said the acquisition opens up growth opportunities in the railway business to complement its existing slate of rubber and plastics customers in the machine, mining and automotive industries.

Established in 1946, Vulcanite's core business is producing bonded rubber and metal suspension parts for rail companies and rail equipment manufacturers. It also supplies the construction, marine and heavy materials industries, with its products put to use in pile driving machinery, crushers and dock fenders.

In order to scale up the business, Allegro supported the construction of a greenfield manufacturing facility in Malaysia in 2012 to supplement an existing facility in Sydney. An experienced Malaysia-based employee was promoted to country general manager and subsequently he became part of the core management buy-in team.

"With our Australian executive team, he helped us source the location of the factory and made the introductions required to obtain regulatory approvals. Allegro was involved overseeing the projects and we basically provided all the money to build the factory from our internal funds," Loader says.

Prior to the acquisition, Vulcanite had only a handful of US customer relationships. Over the past five years, sales in the country have doubled and it now accounts for 60% of global revenue. Most of the company's sales team has also shifted from Australia to the US. Revenue increased more than 60% during the holding period, while net profits have grown by 80%.

According to Allegro, Vulcanite's rubber-to-metal rail component business alone is worth A$750 million ($568 million), whereas global market generates annual revenues of $139 billion. The company currently has about a 5% share of the US and Australian markets, as well as a presence in Latin America, Europe, Asia and Africa. Customers include three of the world's four leading railway rolling stock builders.

"The company [Vulcanite] has tier-one customers, a strong reputation and brand, particularly in the US, and excellent manufacturing facilities. I believe potential buyers were attracted to the business because they saw the opportunity to broaden their product range and to tap into the existing customer base," says Loader.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Australasia
• Trade sale
• Industrials
• Allegro Funds
• Australia
• Exit
• manufacturing