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Bain Capital sitting on 10% gain after Metroglass stake

US private equity firm Bain Capital is sitting on a 10 percent paper gain a day after buying a stake in struggling glass products maker Metro Performance Glass.

The firm spent almost $7 million buying a 9.4 percent stake yesterday, making it the biggest shareholder in Metroglass. Bain paid 40 cents a share using a vehicle that targets distressed assets and is already sitting on a paper gain with the shares up 4 cents at 44 cents today.

Bain is familiar with Metroglass, having sold 8.2 million shares for $13.9 million, or $1.70 piece, in the 2014 initial public offer. It retained a small stake after the IPO, below the 5 percent threshold to identify it as a substantial shareholder.

Metroglass shares sank to a record 37 cents this week after the country's biggest glass processor suspended dividends and downgraded its annual earnings outlook when reporting a 22 percent slide in first-half profit. The result was already under scrutiny on news the company will face a new rival from mid-2020 when aluminium window maker Architectural Profiles completes a new glass processing plant in Hamilton.

First NZ Capital analysts Arie Dekker and Grant Lowe trimmed their target price for the stock this week to 60 cents from 82 cents. They rated the stock 'outperform' based on the valuation, while noting it's a speculative rating until Metroglass addresses its balance sheet.

In a note to clients this week, Dekker and Lowe said Metroglass still has a strong New Zealand position to fend off the new rival and improving its service and strengthening the balance sheet could provide upside for investors willing to take the risk. They estimate the dividend could be suspended for as long as three years.

Bain bought into Metroglass at a price-to-earnings ratio of four times, compared to the average 16.9 times across the wider S&P/NZX All Index.

Metroglass's main rival in New Zealand - Viridian Glass - is also facing an ownership change. ASX-listed CSR today said it will sell Viridian to private equity firm Crescent Capital for A$155 million.

Crescent was among the owners of Metroglass when it went public in 2014, raising $244.2 million. About $230 million of that was used to buy the firm's assets from the private equity firms and senior management. Those owners included Crescent, Anchorage Capital, JP Morgan, WestLB and Bain

Metroglass changed ownership in 2012 after an earlier private equity owner - Catalyst Investment Managers - was ousted by its lenders, who took control of the company when the last residential property downturn made it hard for the firm to meet the interest payments on what was a highly-leveraged acquisition.


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