BUYOUTS-Controversial Sensata a textbook case for Bain Capital
* Complicated carve-outs a specialty
* Investment has quadrupled in value
* Some workers protest outsourcing
By Steve Bills
NEW YORK, July 26 (Reuters-BUYOUTS) - Sensata Technologies Holding NV recently became a flashpoint in Mitt Romney's presidential campaign, after workers at an Illinois factory appealed to the former Bain Capital executive to prevent the closing of their plant and the transfer of work to China.
From Bain Capital's point of view, however, the maker of automotive sensors has been a huge success, quadrupling the firm's investment since it acquired the business from Texas Instruments in 2006. Seth Meisel, a managing director at the Boston-based buyout shop, discussed the company at an industry conference last month, using it as a central example of the way Bain Capital can profit from its investments despite troubles in the macro economy, through what Meisel described as "second-order effects."
Indeed, the Sensata deal is right in Bain Capital's wheelhouse - a complicated carve-out. Bain Capital invested $770 million of equity in April 2006 for the Dutch division of Texas Instruments, the maker of sensors and controls that go into vehicles, appliances and other products.
At the time of the deal, the economy had already peaked and sectors such as housing and auto sales were headed for serious slumps, Meisel said in remarks prepared for his presentation. "But our diligence revealed underlying second order drivers - safety, fuel efficiency, convenience and emissions - that would lead to growth even if the macro slowed."
For instance, demand was growing among automakers for electronic stability controls - computerized systems that prevent cars from skidding, Meisel said. Too, Bain Capital anticipated future growth in emerging markets such as China. Although vehicle sales would fall by a third during the Great Recession and housing starts would tumble by nearly three quarters, Bain Capital and the Sensata management team managed to keep revenue and EBITDA stable during the slump and to build the company both organically and through acquisitions as the economy began to recover in 2009.
As a result, at a compound average growth rate from 2006 through 2011, "revenue grew nearly 10 percent, EBITDA more than 10 percent and we have approximately quadrupled our investors' investment thus far," Meisel said.
Bain Capital took Sensata public through an IPO in March 2010. The firm's $770 million investment is now valued at $3.2 billion, including more than $1 billion in realized value. Bain Capital still owned 51 percent of the company at the end of 2011, a regulatory filing showed.
Employees at a Sensata plant in plant in Freeport, Illinois, appealed to Romney earlier this month to stop their jobs being shipped overseas, as sister news service Reuters reported. Romney is struggling to divert attacks by President Barack Obama and his campaign that portray him as a job killer who does not understand ordinary Americans.
Sensata bought the Freeport plant as part of an acquisition of Honeywell International's auto-sensor business in late 2010. The 170 jobs there were at risk from the start of the purchase, Reuters reported.
But the campaign seems not to have gotten much traction; Sensata has not addressed the outsourcing question, nor did it come up during Sensata's earnings call on Wednesday, when the company reported results that beat expectations - earnings of $0.54 per share, versus the expected $0.53.
Such divergences between the general economy and specific companies are more common that you might think, Meisel said in his presentation. Bain Capital is looking at markets as diverse as housing, chemicals, energy and mining to find new opportunities.
"We retain our conviction that great deals can be done in most any environment and we are business as usual seeking out opportunities," Meisel said. "What I'm doing every day looking for themes and investment opportunities against those themes so even if the macro rains I hope to be smiling; and I hope we'll all be smiling."
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