Madison Filter
Often the companies we invest in are the unloved subsidiaries of much bigger businesses. We invest in them because we can see the potential for a genuine and rapid transformation of the company and spot management teams with vision and ambition. In the case of Madison Filter, here was a company that was operating as a mini-conglomerate with a CEO who knew what it would take to turn the company around. Out of it we created and sold three credible and focussed businesses.
Backing ambitious managers
Madison Filter (formerly the Special Materials Division of Scapa Group plc) was in the middle of a significant turnaround and restructuring programme when we acquired the company in November 1999. Chief Executive Richard Stephenson had spent the previous two years downsizing the business to dispose of low-margin and loss-making product lines. He was now keen to find a partner to support his plans for the future.
With our backing, Madison Filter was transformed from a company manufacturing several different filtration products for a number of disparate industries into the world’s leading manufacturer of oil screens.
Learning about a new industry
Stephenson started the programme of downsizing when Madison’s parent company identified the division as non-core. As a result, sales fell by 19% and EBITDA by 50% between 1997 and 1999.
We had a lot of work to do. For a start, we had no direct knowledge or experience of the filtration industry. But, having recognised that the company provided an ideal platform for an international Buy and Build strategy in the filtration media sector, we were willing to commit significant time and resources to the opportunity.
In a short space of time we conducted extensive due diligence on the industry, Madison’s product portfolio, and its primary markets. We then worked hard to really understand Madison’s consolidated numbers until we were happy we could agree with management’s view that the business was indeed poised for a turnaround.
The senior management team remained in place, joined by Operating Partner, Eric Priestley, as Non-Executive Chairman.
A complete transformation
At the time of acquisition, Madison Filter designed and manufactured consumable filtration media for the oil and gas, chemicals, water treatment, and pulp and paper industries. The company also had a small operation making a highly engineered polishing belt used in the production of silicon microchips and semiconductors.
We supported a Buy and Build strategy, alongside piecemeal disposal in order to maximise value.
In July 2000 we backed Madison’s $36 million acquisition of Southwestern Wirecloth, making the company global leader in the manufacture of oil screens. The acquisition transformed Madison, and led to a formal division into three business lines: oil and gas filtration, general industrial filtration, and polishing belts.
A successful exit
Towards the end of 2001, amid a slowing economy and great uncertainty, we successfully sold both the oil and gas and general industrial filtration businesses to trade buyers in the US and Continental Europe. With improved market share, a portfolio of new products, and a focus on filtration solutions, the companies will be of significant value to their new trade owners.
The semiconductor polishing belt business was sold to Praxair in September 2002. Overall, the Madison sale realised a 3x return.