Crisil sells subsidiary in a MBO deal

Crisil, the credit rating agency, has sold a majority stake in Gas Strategies Group, in a management buyout transaction. Crisil had paid 1.5mn pounds to acquire a 100% stake in the Gas Strategies Group (then known as EconoMatters) in December 2003. As of December 2007, it held 400,000 shares of Gas Strategies Group with a book value of Rs 16.2 crore.

The company was making losses initially before it turned around in 2005-06. Gas Strategies Group does consulting, gives training and gathers information on the international gas and LNG business. And they do a pretty good job of that, with nine-month figures showing sales of Rs 38.75 crore and a profit before tax of Rs 4.3 crore. In a bad market, that is a very good showing.

It contributes about 10% to revenues and 3% to profits. The move will mean a drop in revenues for Crisil and profits too, to that extent. When it acquired the company, Crisil had said it was very impressed by the depth of knowledge of James Ball, president, GSG. Crisil’s gameplan was to take its business, which was essentially European and “capture the emerging opportunities in the gas business across the world.”

Inexplicably, for precisely those reasons, Crisil is letting go of the company now. It now says that Crisil’s Infrastructure Advisory Services Business will focus on opportunities in India and other emerging markets, as these markets have huge infrastructure investments planned. One would have thought it would have made sense to leverage on the knowledge that GSG has in this space. And even if GSG got most of its revenues from Europe, that would have provided a good cushion to expand into other markets.

The GSG team would be happy, having gotten back a company which is in better shape, compared to when Crisil acquired it. For that, they would be thankful. The consideration has not been disclosed. Since its performance has improved, Crisil should have got a good return on its investment. It has retained a 10% stake in the company, perhaps because they will share some business relationships or hope for a windfall when this company gets sold again.

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