Private Market Insights IV/2023

Lots of people have heard of unicorns. A unicorn is a privately held start-up with a valuation of at least a billion euros before its IPO or other exit. Very few people know about dragons, though. A dragon is a portfolio company in a private equity fund, which thanks to good management achieves such an increase in valuation that the sale of this single investment repays the entire investment costs of the whole fund. Buyout funds mostly put together a portfolio of investee companies, so a dragon has to earn a multiple of money of about ten to pay back the whole fund. The normal return for private equity exits is a multiple of money of two to 2.5 times invested capital.

And our portfolio fund BU did it: its portfolio company EA Elektro-Automatik (EA), in which BU II had invested, was sold to Fortive Corporation at an enterprise value of €1.59 billion in October 2023. This successful sale generated 10.5 times the invested capital, equivalent to the entire fund volume of BU II, making it a true dragon.

EA is a German family company that has been in existence since 1974 and specialises in programmable solutions for energy and load management. Its bidirectional components provide dependable measurements for testing electronic components in industrial settings or for research and development purposes. The company’s customer base includes leading businesses from fast-growing, high-potential markets such as electric vehicles, battery storage, renewable energies and hydrogen, such as Tesla.

BU was able to increase the value of EA by focussing relentlessly on growth. The EA management team was expanded, without completely changing the structure of this family company. A new CEO, CFO and COO were recruited, along with another management board member, and a second management level was created that includes employees from research and development and the regional sales function.

The additions to the management team were accompanied by an expanded product range and a capacity increase, which strengthened the production site in Germany and involved doubling the workforce to around 250. Another focus was on expanding the sales force in the USA. From just one employee in US sales at the time of the BU acquisition, the figure has since risen to around 30. Since BU invested in EA in 2020, its revenue has increased by an average of 40 per cent a year.

Golding is very proud of the performance of its BU II portfolio fund, which shows that Golding can offer its investors access to the best fund managers. Although the transaction market has slowed, BU’s skilful management made it possible to achieve all the potential for adding value that they saw in EA, and to realise the capital gains that this generated with an outstanding exit.

The transaction is expected to be completed in the first quarter of 2024 when the competition authorities have given their approval. The proceeds from this transaction will be distributed to the investors in the Golding Buyout 2015 fund shortly afterwards.

EA is the third dragon in the Golding buyout portfolio in 2023, following the exits of Apex (in Golding Buyout 2018) by Alpine Capital Partners from San Francisco, and Amara (Golding Buyout 2015) by ProA in Spain. We certainly hope that 2024, which is the »Year of the Wooden Dragon«, will see even more dragons in the portfolio.