Finning sells Hewden to private equity firm

05 May 2010

Caterpillar dealer Finning International has sold Hewden, its UK equipment rental business, for £110.2 million (€129.6 million) to an affiliate of Sun European Partners, the European adviser to Sun Capital Partners, the Florida based private equity company.

Mike Waites, president and chief executive officer of Finning International, said; "After a comprehensive review, we have determined that for strategic and financial reasons, it is in our shareholders' best interest to divest Hewden.

Mr Waites said Hewden's restructuring and new focus on national accounts business would serve it well, but "owning a large, short-term rental business operating separately from our UK dealership does not align with our strategic objectives."

In a conference call Mr Waites said that Hewden had been a drag on Finning's earnings and that Caterpillar "is supportive of the conclusions we have drawn".

The sale was completed today and comprises £90.2 million in cash and £20 million via an interest bearing 5-year loan note. Finning said it will use the proceeds primarily to reduce debt.

As part of the sale, Finning has negotiated a strategic alliance with Hewden's new owner for the supply of Cat equipment, although this alliance is not a hard commitment. "We have to win that business", said Andy Fraser, managing director of Finning UK Group. Cat equipment makes up around a third of Hewden's fleet.

Finning, which acquired hewden in late 2000 for around £400 million (C$624 million), said it would make an accounting loss of approximately C$247 million on the sale. This loss includes C$101 million of foreign exchange losses relating to the investment in Hewden; a $68 million charge relating to the recognition of the unfunded pension liability which Sun Capital has assumed; and a C$78 million loss on Finning's net carrying value of Hewden.

Mr Fraser at Finning UK, said, "Going forward, Finning's UK dealership will continue to work closely with our plant hire customers to place Caterpillar equipment into the UK equipment rental market...We are confident we can demonstrate the value of Finning to Hewden's new owners and maintain a productive commercial relationship with Hewden.

"This is a continuation of our journey towards a new Finning and the final step in rationalizing our UK operations. Combined sale proceeds from this transaction, Hewden Tools [sold to Speedy Hire], and the dealership's Materials Handling divisions total almost C$600 million".

Hewden's existing commercial centre in Manchester is proposed to be the new head office for Hewden. Hewden has 63 locations in the UK and 1300 employees.

The sale is significant not just for the change in strategy it signals for Finning in the UK but for Caterpillar's Cat Rental Store network in Europe. Although Finning never actually rebranded Hewden as a Cat Rental Store in the UK it was considered part of the Cat rental network in Europe. It means that Germany's MVS Zeppelin becomes the largest Cat Rental Store business in Europe.

Sun Capital managing funds of around US$8 billion. Its European arm, Sun European Partners, targets companies with €30 million to €3 billion in sales and has a broad industry focus. It has previously been involved in the construction industry through the acquisition and subsequent sale in 2005 of German formwork company Hunnebeck, now part of Harsco.

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