American Industrial Partners: the buyout firm taking on Sanjeev Gupta
Because the demise of Greensill Capital threatened to tear Sanjeev Gupta’s enterprise empire aside, the metals magnate has managed to carry it collectively because of a commodities increase and the endurance of Credit score Suisse.
The industrialist over the weekend introduced a restructuring of his Australian operations with the Swiss financial institution, which funnelled greater than $1bn to Gupta by way of its suite of provide chain finance funds tied to Greensill. On the identical time, his UK metals vegetation will obtain £50m in new funding.
The long-awaited offers are very important for GFG Alliance, the ragbag assortment of metals vegetation Gupta paid for with greater than $5bn of loans from Greensill. However seven months on from the latter’s failure, the largest menace to Gupta preserving his empire intact has sprung from an unlikely supply.
A bunch of executives from American Industrial Companions, a little-known personal fairness agency with a nostril for worth, final week arrived at Gupta’s aluminium smelter in Dunkirk on the northern coast of France.
Dino Cusumano, Danny Davis, Zac Carson and Max Holmes had a easy message for the roughly 100 staff gathered on the smelter considered the crown jewel of Gupta’s European enterprise: the US buyout agency was now in cost.
For AIP, which usually scours the unloved corners of America’s industrial financial system for takeover targets, taking management of Europe’s largest aluminium smelter can be a coup. For Gupta, the lack of the location can be a critical blow, robbing his empire of a significant supply of revenue with the steel buying and selling at its highest degree since 2007.
Gupta responded with a menace of authorized motion, saying AIP’s rivalry that his firm had defaulted on its money owed to the personal fairness agency was “incorrect” and that AIP was attempting to purchase the enterprise “on a budget”.
New York-based AIP started shopping for up the money owed of the smelter and GFG’s aluminium mill in Duffel, outdoors Antwerp, in April, only a month after Greensill filed for administration.
“Lots of people would have been within the asset, however the issue was that it wasn’t on the market,” mentioned a senior determine at France’s economics ministry, whose approval is required for the reason that Dunkirk smelter is deemed a “strategic asset”.
AIP “have been fast, and able to pay 100 per cent of the worth of the debt to take management”, the individual mentioned. “We had no objection.”
GFG was a lovely goal for AIP. Troubles at Gupta’s enterprise deepened in Could when the UK’s Critical Fraud Workplace mentioned it was investigating suspected fraud and cash laundering at GFG. The group has denied wrongdoing.
In accordance with its web site, AIP takes inspiration from Rudyard Kipling’s The Jungle Ebook. A web page with particulars of its group — displaying that 30 of its 32 companions are male — is headlined: “The power of the wolf is the pack, and the power of the pack is the wolf,” a reference to the 1894 story assortment, wherein the clauses are the opposite method spherical.
With an investor base spanning Essex county council’s pension fund within the UK to Alaska’s sovereign wealth fund, AIP’s group of ex-bankers and former industrial executives has amassed companies throughout the US.
AIP’s firms promote the whole lot from tyres and wooden flooring to nappies. It agreed final month to purchase the defence large Raytheon’s defence coaching unit.
It’s a “value-oriented” agency that buys firms it hopes to “remodel . . . to be extra engaging”, Alyssa Fiore, an funding officer at a Massachusetts pension group, mentioned at a gathering the place she proposed a $75m dedication to its fund in 2019, in all probability reflecting the pitch the buyout group makes to buyers.
In personal fairness, “everybody says [their own firm is] operationally-focused, however AIP has extra credibility than most after they say that”, mentioned one government whose agency invested in AIP. “They search for conditions the place there’s complexity” fairly than shopping for “simple firms which have already been scrubbed off” by different buyout teams.
With about $7bn beneath administration, it’s a minnow in contrast with the business’s best-known names similar to Blackstone and KKR.
A $406m fund that AIP raised in 2007 was within the high quartile for efficiency, amongst friends, in line with the information supplier PitchBook. However its three newer funds are much less spectacular, rating within the third or fourth quartile.
Nonetheless, Aberdeen Customary Investments, whose Customary Life personal fairness belief dedicated £15m to the fund, described AIP in a 2019 report as a “greatest at school” buyouts group.
AIP had crossed paths with GFG earlier than the conflict over the Dunkirk plant. Their connection has its roots within the 2018 takeover of the aluminium firm Aleris by metals provider Novelis in a $2.6bn deal.
Competitors regulators compelled the merged enterprise to promote two Aleris vegetation — one in Duffel, which Gupta purchased, and one in Lewisport, Kentucky, which AIP acquired and renamed Commonwealth Rolled Merchandise.
That connection paved the best way for GFG to method AIP a couple of sale of the Duffel plant within the instant aftermath of Greensill’s failure, three individuals with information of the matter mentioned. Gupta in the end signed preliminary agreements to promote each Duffel and the Dunkirk plant to the personal fairness group, together with an settlement on value, the individuals mentioned.
The talks fell aside by July this yr, nonetheless. By then, Gupta was in discussions with Glencore about an alternate deal that will have enabled him to remain answerable for his European aluminium enterprise. GFG later mentioned the AIP talks fell aside due to the “gross under-market valuation AIP placed on the enterprise”.
Jay Hambro, GFG’s chief funding officer and one in every of Gupta’s most loyal lieutenants, had backed the AIP proposal, laying the groundwork for a conflict together with his boss. Hambro is now on gardening go away, in line with two individuals accustomed to the matter. Hambro declined to remark.
As Gupta held talks with Glencore, AIP purchased a second chunk of the Dunkirk plant’s debt, this time from BlackRock — which might later allow it to foreclose on the shares of the French firm that owns the smelter.
However even with a booming aluminium market, AIP will face challenges at Dunkirk, which employs about 630 individuals and produces 280,000 tonnes of the light-weight steel every year.
“What issues to us, as workers, is that AIP doesn’t come to pump all our income,” mentioned Pascal David, head of the CFE-CGC union on the smelter. “We all know how [private equity funds] work, their goal is to offer income to their buyers.”
AIP executives advised workers that every one jobs and contracts can be saved.
The buyout agency shouldn’t be a stranger to the controversy that may include struggling firms. In 2017, it prevented a steep decline within the worth of US power gear producer Babcock & Wilcox Enterprises, promoting its 10 per cent stake again to the corporate shortly earlier than issues at its renewable unit have been disclosed, courtroom filings from Babcock shareholders declare.
AIP acquired what one aggrieved shareholder described in a lawsuit as an “artificially inflated” value on the sale of the stake. The buyout agency secured an extra sweetener by offering $176m in emergency lending to the corporate at a tidy 10 per cent rate of interest.
AIP was by no means accused of any wrongdoing, and was not the goal of the lawsuit. Babcock shareholders acquired a $19.5m settlement in change for dropping their claims in opposition to the corporate. AIP declined to remark. Babcock declined to remark.
Just like the takeover of the Dunkirk smelter, the Babcock funding concerned AIP’s Lightship affiliate, which runs its lending actions. The identical unit purchased Rand Logistics, a New Jersey-based delivery enterprise, in a debt-for-equity swap in 2017 and later bought a stake to credit score investor Oaktree.
As soon as dubbed Britain’s “saviour of metal”, Gupta final month celebrated his fiftieth birthday in lavish type on the Greek island of Mykonos. Amid final weekend’s euphoria over the Australian deal, AIP’s intervention is a sobering reminder of the challenges Gupta nonetheless faces.
Further reporting by Owen Walker in London