Management buyout for subsea vehicles

Apr 4 2008 by Graeme King, The Journal

FAST-GROWING subsea vehicle maker SMD Hydrovision has been bought out by its management for an eight-figure sum, it emerged yesterday.

Long-time owner and managing director John Reece will stay with the business, but private equity house Inflexion has also taken a 60% stake.

Four of SMD’s senior management team have bought in alongside Mr Reece, and new chairman Steve Curl will also have a stake.

SMD has expanded rapidly in recent years as the oil and gas market has boomed, and the company is also benefiting from major contract wins in other areas too.

The business posted sales of £30m in 2006, around £40m in 2007 and expects to rack up more than £50m for 2008.

SMD is probably best known for making hi-tech, remotely-operated machines for digging trenches and laying pipelines on the floors of the world’s oceans.

But the company is also growing in telecoms (originally the company’s main focus), offshore wind and subsea mining.

Inflexion’s investment in SMD follows the recent sale of The Engineering Business from Riding Mill in Northumberland to Dutch firm IHC Merwede in a deal believed to be worth around £30m, and reinforces the strength of the offshore market in the North East.

Mr Reece said: "Bringing in a partner gives us a lot more options for growth for the company.

"It’s an exciting time as we have good growth prospects in a number of different markets.

"The deal is an MBO-style share purchase by Inflexion but there will also be follow-up investment available as and when it is required.

"All the sectors we are involved in, I hope and believe, are set fair for more growth."

SMD has 135 staff based on Wimcomblee Road in Walker, Newcastle, but its products are used all over the world. Now Mr Reece and fellow directors Mike Jones, Peter Imlah, Paul Atkinson and Richard Howarth will have the opportunity to expand the business further.

Inflexion, with offices in London and Manchester, has a track record of investing in the lower end of the private equity marketplace.

Managing partner John Hartz said: "SMD possesses all the characteristics that Inflexion seeks in a new investment: a leading specialised company in a niche market, with extremely high barriers to entry."

Mr Reece was advised by a corporate finance team from Pricewaterhouse- Coopers including Paul Mankin, Amit Bhalla and Ben Maxted. Legal advice came from John Flynn and Iain Pritty of Dickinson Dees.

A package of debt facilities has been committed by Barclays and HSBC.