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Carlyle exits Talaris with Glory

by Jonathan Braude in London | Published February 14, 2012 at 10:55 AM

Carlyle Group kissed the cash goodbye. The Washington buyout firm on Tuesday, Feb 14, announced a £650 million ($1 billion) agreement to sell its British cash management systems and software business Talaris Ltd. to Japanese money counting machine maker Glory Ltd., after a period of rapid expansion into new markets. Carlyle declined to comment on its returns on investment, but it appears to be a solid exit for the private equity firm.

In its own statement issued earlier in the day, Glory said combining its own product development capabilities with Talaris' systems expertise would provide customers with better money handling services. The two companies are also complementary geographically, with Glory stronger in Asia and Talaris a bigger presence in Europe and the Americas.

"Talaris has demonstrated strong performance in recent years despite the challenging market environment and we are excited by our combined growth potential," said Glory president Hirokazu Onoe, in the statement.

Talaris, which has a strong client base in banking, financial services and gaming, has expanded into a number of new geographies under Carlyle's ownership, particularly emerging markets such as Brazil, where the private equity firm's regional investment partner Banco do Brasil has become one of the company's most recent clients. Talaris employs about 1,900 people worldwide and has offices and a partner network giving it a presence in over 100 countries. Its ebitda grew to £68 million on sales of £321.5 million in the year to March 31, 2011 from £68 million (also on sales of £321.5 million) in FY 2011. Cash in the company grew in the same period from £51.7 million to £89.8 million, despite the use of substantial sums to pay down debt and the costs of closing the company's Swedish office operation and increased investments during the course of FY 2011.

Neither Carlyle nor Glory revealed the exact financial structure of the deal, which is subject to regulatory approval in various jurisdictions and to employee consultation in France. But in a stock exchange announcement, Glory, of Himeji, Japan, said the cost of the deal, including the refinancing of Talaris' interest bearing debt, would be met primarily from internal funds and bank loans. (It said the impact of the acquisition on its own accounts was still being looked into and it would disclose details as soon as they became available).

Talaris did not disclose its most recent debt position, but the company reported net debt of £166.2 million at March 31, 2011 (down from £180 million in March 2010 and £243.4 million in 2009). It said in an interim statement for the six months to September 2011 that it had been applying some of its excess cash to the repayment of its most expensive tranche of external debt.

In trying to estimate Carlyle's undisclosed returns on investment, a simple comparison between the acquisition and exit prices (an increase of 80%) is unlikely to reflect the real position. Carlyle carved the Basingstoke, England-based cash systems unit out of banknote printer De La Rue plc in September 2008 for £360 million, on a debt-free, cash-free basis. The investment was made through the firm's upper-mid-market Carlyle Europe Partners III fund. Carlyle said it has invested significant additional sums in expansion and in new technologies since the acquisition and Talaris' earnings have increased over 40% under Carlyle's ownership.

After the buyout, Carlyle rebranded the business Talaris and loaded it with debt financed by Lloyds TSB plc, Société Générale SA, Calyon -- the investment banking arm of Crédit Agricole SA -- and GE Corporate Finance. Talaris' annual report for 2009 says initial funding for the acquisition included £186 million of senior term debt and £60 million of mezzanine, as well as Carlyle's £128.9 million of preference shares in the company. The preference shares had increased to £169.1 million by March 31, 2011 due to accrued interest.

(Preference shares are classified as debt under international financial reporting standards, although the company's subsequent results do not include preference shares or accrued dividends under the heading of net debt.)

Carlyle's Andrew Burgess is advised by Bank of America Merrill Lynch and by David Walker and Caroline Sherrell of Clifford Chance LLP, the law firm which also advised Carlyle on the acquisition from De La Rue in 2008. Glory ia taking advice from KPMG LLP and from London law firm Slaughter and May working as an integrated team with Tokyo firm Mori Hamada & Matsumoto. Slaughter and May's partners on the deal are Gavin Brown, Philippe Chapatte, Gareth Miles, Sandeep Maudgil, Cathy Conolly and Jane Edwarde. The Mori Hamada & Matsumoto team is led by corporate partner Takayuki Kihira.

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