Masters the value creation playbook
Masters the value creation playbookM&A /CORP. ACTION
IDI announced today that it has completed, alongside Andera Partners, the sale of Flex Composite Group to Michelin. This operation, unveiled in June, will enable IDI to realise a capital gain of around €255m and to pocket close to €278m, corresponding to an investment multiple of 12 times the initial €23.2m outlay. Not only will this deal fill IDI’s pockets, it also further demonstrates IDI’s ongoing ability to create value.
FACT
IDI made its first investment in Flex Composite Group for €23.2m back in 2015.
At the end of 2022, IDI held 63.39% of the group alongside Andera Partners – a minority investor.
IDI and Andera Partners announced an agreement to sell the entire Flex Composite Group to Michelin for an enterprise value of €700m on 18 June 2023.
IDI and Andera Partners completed the sale agreement on 27 September 2023.
With this transaction, IDI achieves a multiple of 12x and an IRR of 38%.
ANALYSIS
A masterstroke which radically changes IDI’s investment power
After announcing an agreement to sell Flex Composite Group alongside Andera Partners on 18 June, IDI reported today that it has completed the transaction. Flex Composite Group will join Michelin’s portfolio for an enterprise value of €700m. As a reminder, IDI acquired a stake in the group back in 2015 for €23.2m and holds, as of December 2022, 63.39% of the group alongside Andera Partners as a minority shareholder. With this operation, IDI will complete a stellar cash-on-cash multiple of 12x its initial investment, i.e. around €278m, corresponding to a capital gain of €255m and an IRR of 38%. This deal will therefore significantly line IDI’s pockets, enabling it to finance new investments. We estimate that, after this transaction, IDI should have a net cash position of around €352m.
Back to Flex Composite Group
As mentioned in our last paper, Flex Composite Group is a European leader in the design, manufacture and distribution of advanced composite materials. The group is now made up of three divisions: i) Engineered fabrics, the technical coated fabrics division, ii) Carbon fabrics and technical composites Composite Materials, and iii) a thermoplastic films division, Technical Films, all of which have enabled it to achieve sales of c.€200m in 2022. Starting in 2015 up to 2022, through IDI’s support of its development, FCG has generated an operating margin of between 25% and 30% and average organic growth of 11%.
Michelin’s acquisition of FCG and integration into its High Tech Materials division is in line with Michelin’s ambition to create a world leader in advanced composite materials. Michelin aims to combine the strengths of FCG and Michelin in R&D, but also geographically.
FY 2023 outlook
Since 1 January 2023, IDI has completed or announced 14 transactions, including 5 disposals, 4 external growths and 5 acquisitions: the acquisition of a 40% stake in Omnes’ energy transition and innovation activities, the creation of 100% IdiCo (now fully consolidated), the disposal and subsequent reinvestment in Freeland, the investment in Natural Grass as well as in Prévost Laboratory Concept, and external growth transactions for Talis Education, CDS, and Groupe Positive.
With a net cash position expected to reach €350m or so, IDI will have considerable firepower to finance new investments, and who knows, maybe redistribute some of the money through dividends. This is not unlikely as IDI has a focused investment strategy (less than 20 lines) and prefers its assets to fund their growth autonomously with IDI’s support only for bigger strategic deals.
IMPACT
We will incorporate the capital gain from the sale of FCG into our estimates. Our model is currently being revised to incorporate the H1 23 figures.
Groupe IDI activity is divided in two areas: through its subsidiaries, EURIDI and Marco Polo Investissements, Co. is engaged in management buy-out/buy-in and growth capital investments in French small-mid caps valued between Euro7,000,000 and Euro75,000,000 also, through its subsidiary, IDI Mezzanine, is engaged in mezzanine financing. Also Co. is active in the purchase of secondary market portfolio.
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