Ironbridge brings long-term strategy to fruition


Financial Review - CAPITAL MAGAZINE

James Eyers
25 January 2013
Like all private equity exits, the sale last week by Ironbridge of its waste management business in New Zealand to a company led by Asia's richest man was the culmination of deal-making and strategic thinking that began many years ago.

Back in April 2007, Ironbridge won a hotly contested battle for EnviroWaste, which owns and operates New Zealand's largest landfill at Hampton Downs, in North Waikato near Auckland. The acquisition was sponsored by one of Ironbridge's founding partners, Greg Ruddock, who worked with Matthew McLellan (who left Ironbridge in mid-2011), Kerry McIntosh, who runs Ironbridge in New Zealand, and Chris Aughton. Ruddock championed the deal on the basis that waste management was a sector that delivered stable and strong cash flows. This would allow Ironbridge to employ aggressive leverage.

EnviroWaste also provided an opportunity for growth by acquisition, given the highly fragmented nature of the industry. The deal's strategic rationale involved bringing the business closer to its customers by bidding on commercial and local government collection contracts and expanding into processing specialised waste and recycling.

Other Australian private equity firms also sensed the opportunity across the ditch: Archer Capital, Quadrant Private Equity and Pacific Equity Partners all ran their rulers over EnviroWaste. But Ironbridge won the asset from privately owned NZ engineering and construction group Fulton Hogan, after offering $NZ259 million. It also warded off competition from Transpacific Industries, EnviroWaste's major competitor, which agreed not to compete in the auction in return for several assets on NZ's South Island.

Ironbridge began its series of bolt-on acquisitions – there would be 17 in total during its five-year period of ownership, during which time EnviroWaste's earnings before tax, interest, depreciation and amortisation doubled – including a chemical waste treatment and chemical recycling business. 

A new management team was recruited; the doyen of waste management in NZ, Kim Ellis, previously the CEO of Waste Management NZ (now Transpacific), joined as chairman in 2007. Another senior waste management executive, Gary Saunders, joined as chief executive, while Earl Gasparich was recruited as chief financial officer. Gasparich was well known to Ironbridge, having worked as CFO of aged-care services provider Qualcare, which Ironbridge sold to Macquarie in February 2008 for $NZ382 million.

When McLellan left Ironbridge in 2011, Julian Knights, another founding partner, took over management of the investment, joining the EnviroWaste board and leading the exit process, with assistance from partner Mike Hill.

Macquarie's relationship with Ironbridge extended much deeper than being the buyer of Qualcare. The investment bank had assisted Ironbridge on the buy side when it proposed to acquire Symbion Health in 2007, and during Ironbridge's purchase of software firm Bravura Solutions in 2008. Macquarie had also taken on sell-side roles, including offloading drilling services group Easternwell to Transfield Services for $597 million in 2010, and assisting Ironbridge with the sell-down and refinancing of Super A-Mart early last year. After the later deal, Macquarie's head of private equity, Jeremy Tasker, rolled into the EnviroWaste sale.

After formally being appointed last May, Tasker worked closely with Macquarie's NZ director of advisory and capital raising, Martin Wight, and André Babich on a process that targeted infrastructure investors, given the strategic nature of the key landfill asset. Macquarie's head of infrastructure, Jim Miller, was also involved in the analysis of the business, which included building a 50-year model, and identifying potential buyers worldwide.

Macquarie also ran the numbers on an initial public offering and considered a sale to other private equity firms and trade buyers. The sorry state of IPO markets meant a float was quickly dismissed. Private equity firms Archer, Quadrant and the Carlyle Group and potential trade buyers including SITA and Japan's ORIX Corp, all kicked the tyres. But Macquarie believed a specialist infrastructure investor would be best placed to pay the highest price.

Top of the hit list was Cheung Kong Infrastructure Holdings, the largest publicly listed infrastructure company in Hong Kong, which was blazing an acquisition trail with the backing of director Li Ka-shing, Asia's richest person. Macquarie approached senior management about a deal in September. The process was accelerated to accommodate their interest.

CKI appointed UBS, with which it has a relationship in Hong Kong; Chris Simcock worked on the deal from UBS's Auckland office. In late November, an internal CKI team of four flew to Auckland from Hong Kong to conduct the detailed due diligence. CKI's offer of $NZ501 million, representing a multiple of 10 times EBITDA, was ultimately accepted.

The exit is the third for Ironbridge from its second fund. Together with the divestment of Easternwell and iNova Pharmaceuticals (which was owned jointly with Archer), Ironbridge is already able to return 70 per cent of the invested capital in the fund from the realisation of just three of its 11 investments.

The legacy of the deal may be to assist Ironbridge market its third fund, which will target $500 million to $600 million later this year.