EQT’s exit from German disinfectant manufacturer Schülke is coming a little earlier than the typical five years, after stricter hygiene standards and a trend for nearshoring drew interest in the company – which had an earlier boost from supplying a vital product at the height of the covid pandemic, partner Matthias Wittkowski told PE Hub Europe.
Any sense though that the Stockholm-headquartered private equity firm pushed the exit forward to help it reach its next buyout fundraising target during a tough exit market was belied by its financials – generating what a source close to the deal said was an enterprise value of about €1.4 billion and a 5x return.
Founded in 1889 and headquartered in Norderstedt, just outside Hamburg, Schülke supplies hospitals and other healthcare institutions with disinfectants and antisepsis products. It had been a wholly owned subsidiary of French multinational Air Liquide since 1996, before the EQT VIII fund bought it in July 2020 – bang in the middle of the covid pandemic.
EQT announced on Monday that it had agreed to sell the business to a consortium led by Munich-based single-family office ATHOS. The deal is subject to customary regulatory approvals and expected to close in the fourth quarter.
Schülke had double digit annual revenue growth and almost doubled EBITDA in its core healthcare business under EQT’s ownership, according to a release – something that drew several suitors.
Bank of America led a competitive auction process that attracted a “double digit” number of parties, including strategic and sponsored buyers “that were active healthcare investors and understood the growth potential that Schülke will see in the future”, said Wittkowski. “Eventually the ATHOS Consortium pre-empted the process and led this to a successful signing.”
Demand driver
The upsurge in demand for disinfectant provided an obvious early tailwind during EQT’s ownership of Schülke, despite also being a “huge challenge”, said Wittkowski.
The company decided that its products would “first and foremost go to the healthcare sector” and only go to consumers once hospital demand had been satisfied, said Wittkowski. Then in 2021 and 2022, there was a covid “hangover”, with hospitals overstocked with disinfectant.
This year brought normalisation, but a higher awareness of hygiene has lingered, said Wittkowski – “something that will remain as a demand driver”. He added: “We still see hundreds of thousands of patients in Europe dying of hospital-acquired infections, a large number of which could be avoided by strict adherence to the hygiene protocols. A lasting impact of those stricter hygiene rules will hopefully make hospitals across the world safer places for all of us.”
Another effect of covid was a shift to nearshoring, after bottlenecks led to shortages in critical items like face masks and vaccines. Schülke, with a production facility in Germany and one in France, also stands to benefit from that trend, said Wittkowski.
“That remains core to the strategy going forward,” he said. “We as Europeans clearly are well served if we all put emphasis on local supply of high-quality pharmaceutical products, including infection prevention and treatment.”
Other work included taking the “mixed bag” EQT inherited from Air Liquide and focusing it on healthcare, including by selling its personal care business for €262.5 million in April 2021 to Ashland Global Holdings, a US specialty materials company, and discontinuing some of its food and beverage business.
EQT also invested in innovation and sustainability, switching it from “100 percent conventional electricity to as close as you can get to 100 percent renewables”, while also launching a green hospital grade product line with biodegradable wipes and bioethanol-based hand disinfection. It also entered new markets such as Spain and the Nordics, as well as the direct patient care segment.
“We felt that after those three years of work with the business, when we got a couple of unsolicited inbounds from people that had been following the space and had been attracted to the business, it would be time to consider strategic options,” said Wittkowski.
Exit environment
The wider exit scene has been tricky, thanks to a moribund IPO market and poor financing conditions for potential buyers, but EQT has managed to be busy. It has signed four in the last three months, most recently Ellab to Novo Holdings and BBS Automation to Dürr Group in June.
“Capital markets may not be the strongest we have ever seen, so it’s a testimony to the businesses that EQT invests behind and it’s a testimony to EQT’s work with our portfolio companies,” said Wittkowski.
The sales should help EQT reach its target of €20 billion for its upcoming fund EQT X. It had already hit more than €18 billion by 14 July, according to its half-year report 2023. It expects to complete the fundraise in the summer.
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