Allegro II

Allegro II is managed by Sydney based Allegro (www.allegrofunds.com.au) an independently owned Australian fund manager investing primarily in mid-market businesses within Australia and New Zealand. Allegro currently manages more than $1.1 billion of enterprise value in investments.

Allegro are specialists in “Transformational Capital” – applying capital and expertise to unlock and create value. Allegro invest equity funds on behalf of their investors, and work in partnership with management to realise growth potential and deliver enduring value to their investors.

In September 2008, Allegro became the first fund manager to be backed unanimously by institutional investors to replace the incumbent manager of an Australian private equity fund, when it was appointed to manage the $300 million ABN AMRO Capital Australia Fund II (renamed Allegro Private Equity Fund I).

Today Allegro is recognised as a leading fund manager in the mid-market segment. Allegro’s staff of nine, including six investment professionals, bring deep and varied experience in investing, turnaround management and operational value creation. Allegro have a proven ability to originate, evaluate and execute quality deals, and to drive value from mid-market businesses.

An active manager of portfolio assets, Allegro prefers hands-on involvement in both strategy and overseeing operational improvement. Allegro believe that staying close to portfolio companies is the surest path to extracting the value, and returns, that investors demand.

The performance of Allegro Fund I bears the hallmark of this distinctive approach. Since Allegro was appointed manager, the fund has generated attractive returns through the economic cycle, despite facing some of the worst conditions seen in generations following the global downturn of 2008.

Since 2010 Allegro has been pursuing a strategy of investing in stand alone opportunities in partnership with leading Australian Super Funds, Global private equity funds (KKR), leading global hedge funds and more recently via Allegro Fund II.

The $180m target Allegro Fund II completed its first close at $120m during November 2014, backed by both local and global institutional investors.

Allegro II has completed eight investments to date, Custom Bus, Great Southern Rail, Carpet Court NZ, Pizza Hut Australia, JSW Australia, Experience Australia, Healthy Life and Everest Foods.

Custom Bus. was acquired by Allegro in consortium with the former management and owners of the business, on 15 August 2014 and became the first investment in Allegro II. The “Management Buyin” team is led by former owner and managing director of Custom, Mark Burgess, whose family established the business in 1955.

Custom Bus specialises in building large (41+ seat) government (metro) and school buses and is the 2nd largest bus builder in Australia with 60 years of operating history in the local industry. Custom Bus has a 20,000 sqm purpose built manufacturing facility at Villawood, Sydney which employs approximately 140 staff.

The business is currently completing a contract to build buses for the NSW State Transit Authority and also has a contract to supply buses to the South Australia departments of transport and education. Custom Bus built more than 220 buses in 2013 accounting for about 15 per cent of the Australian market.

Allegro’s investment thesis for Custom Bus is based on expected growing demand for city buses as more public transport was provided plus legislation requiring larger numbers of buses to be provided with disability access and for rural school buses to be made safer with seat belts fitted.

During February 2017, Allegro Fund II sold its interest in Custom to MPC Investments Nominees Trust to the previous owners of the business.

Great Southern Rail. (GSR) was acquired by Allegro II from UK listed Serco, in May 2015. GSR operates the transcontinental passenger rail services, The Ghan, The Indian Pacific and The Overland in Australia.

Allegro acquired this iconic Australian asset in order to capitalise on the forecast growth of the luxury tourism sector in Australia.

Allegro view this investment as an opportunity to cater to the high-end experiential tourism market. The Ghan and The Indian Pacific are iconic rail experiences positioned to provide guests with an opportunity to experience an authentic Australian adventure through the comfort and luxury of travelling by rail.

The acquisition leverages Allegro’s experience in the domestic tourism industry, building on the strong growth Great Southern Rail has experienced in recent years. Through working with management and other stakeholders, Allegro plan to build value and realise the growth potential of these unique Australian assets.

Allegro funded the acquisition with 100% equity and have partnered with GSR’s existing management team to generate further benefits for the company’s employees, customers and suppliers.

Key management personnel continued their employment with the company, under the new ownership arrangements, including GSR’s Chief Executive Officer, Chris Tallent.

On 15 September 2016 Allegro announced that Private equity firm Quadrant had entered into an agreement to acquire a majority stake in GSR.

During Allegro II’s 16-month ownership period GSR’s business was stabilised and its earnings more than doubled.

Allegro Founding Partner, Adrian Loader, said when Allegro acquired GSR it needed capital and dedicated focus to grow. “It wasn’t the right fit under its previous owner but it had a strong management team in place, iconic assets and was well positioned to capitalise on the forecast growth of the luxury experiential tourism sector in Australia,” he said.

“We helped stabilise the business through targeted investment and allowed it to begin to fulfil its potential. As a result, GSR has since launched a suite of highly successful new service offerings and it is close to fully booked for this season with strong sales in place for next year.

“The transformation of GSR in a short time-frame is a testament to all involved and now is the right time to transition the business to its next phase under the majority ownership of a well-established growth facilitator.”

Key GSR management personnel, including Chris Tallent (CEO), Steve Bushaway (CFO), Steve Kernaghan (CRO) and Ian Ladd (COO) will continue under the proposed ownership arrangements.

The transaction was finalised in early October with VPEG2’s share of the top quartile exit proceeds received soon after, following which a distribution to VPEG2 investors resulted.

Experience Australia. The sale of Great Southern Rail (GSR) to Quadrant (detailed above) also provided Allegro II the opportunity to retain a share in the ultimate entity purchasing GSR, Experience Australia.

During December 2016, Allegro II reached financial close on the sale of GSR and the simultaneous investment in Experience Australia.

Experience Australia is an experiential tourism business backed by Quadrant Private Equity, of which GSR was the foundation investment and cornerstone asset.

Following the GSR acquisition, Experience Australia also acquired Cruise Whitsundays and Rottness Express, two ferry businesses providing tourism services with strong strategic positions across their operational routes.

Carpet Court NZ. On 28 July 2015, Allegro II announced it had acquired a controlling interest in New Zealand’s leading flooring retailer Carpet Court, which has 60 outlets across the country.

Once sale conditions are complete, Carpet Court will be recapitalised and its assets transferred to Carpet Court New Zealand Holdings Limited, and the business will be bank debt free on completion of the deal.

Allegro co-founder Chester Moynihan will be the new chairman of Carpet Court New Zealand, which will retain key Kiwi talent at the top including accomplished Kiwi entrepreneur Stefan Preston as a non-executive director, retail expert Rob Smith as chief executive and the senior management team.

Allegro is looking to invest significantly in the roll out of its new store format and continue investment in centralised warehousing and distribution. Allegro will also retain a majority of the existing staff, and has secured full support of the existing management team.

Allegro will also implement an aggressive three-year growth strategy, which will see the business add more Carpet Court stores nationwide.

Pizza Hut Australia. On 6 September 2016, Allegro II announced that together with a local management buy-in (MBI) team it had acquired the master franchisee licence for Pizza Hut in Australia from US-based parent company Yum! Brands, global owner of the Pizza Hut brand.

Allegro will deploy its successful investment methodology of combining growth capital with management expertise to grow the Pizza Hut brand in Australia and drive operational improvements across the store network. As such, a highly experienced quick service restaurant (QSR) management team has been assembled as part of the transaction.

Pizza Hut has been a household name in Australia since the early 1970s. The brand has high awareness with consumers and an important part of Allegro’s thesis involves repositioning and modernising the brand to capitalise on this brand recognition.

Pizza Hut was one of the first pizza companies to home deliver in Australia and Allegro will seek to revive this innovative legacy to enhance the experience for customers. Strategic investments in product and distribution have the opportunity to generate strong returns.

JSW Australia. On 9th December 2016, Allegro II acquired the mine production and specialist drilling services business of JSW Australia Pty Ltd (‘JSW’).  JSW was a profitable subsidiary of distressed parent Hughes Drilling Limited that went into Administration in September 2016.

JSW commenced operations in 2010 and is one of Australia’s largest drilling companies based in Perth, Western Australia with branches in Kalgoorlie, Port Hedland and Boddington.  JSW has a broad commodity exposure and long term relationships with tier 1 customers in mining, government and private enterprise.  The company has access to over 50 drill rigs and provides highly specialised services including production drilling, blasting, mineral drilling, water wells and other services to clients such as Rio Tinto, BHP, Nickel West, Fortescue Metals Group, South32 and Regis Resources.

The company is also an Enterprise Registered Training Organisation and has accreditation to provide nationally accredited training to its approximately 140 staff and was also recognised at the WA Training Initiative awards for outstanding achievements in training in 2015.

Healthy Life. During February 2017, Allegro II acquired a controlling interest in Healthy Life, Australia’s leading health food retailer.

Established in 1968, Healthy Life has over 60 stores nationally that provide consumers with a comprehensive range of natural health products including organic & whole foods, superfoods, allergy-free foods, drinks & herbal teas, supplements, sports nutrition, natural hair & skin care.

The company prides itself on its dedicated focus to providing quality health food products and trusted advice, helping thousands of customers achieve and maintain optimum health and wellbeing.

Everest Foods. In October 2017, Allegro Fund II acquired Everest Foods, a leading manufacturer and distributor of ice cream, gelato, sorbet and frozen desserts distributed to the foodservice sector including ice creameries, cafes, restaurants, and institutions such as hospitals. The Everest brand stable also includes Nörgen Vaaz, a premium ice cream range

Established in 1958 in Melbourne, Australia, Everest Foods has created a unique platform underpinned by leading agile production capabilities, long-standing customer relationships and national distribution infrastructure. The company is fully licensed and food safety accredited.

Allegro intends to transform Everest Foods to become the number two player in the ice cream foodservice sector, and potentially a leading player in the broader dessert food service market.

Terrex. During April 2017, VPEG2 investee Allegro II acquired a controlling interest in Terrex Seismic, Australia’s leading onshore seismic surveyor.

Terrex Seismic is the dominant player in its industry providing cutting-edge seismic acquisition services, surveying and geophysical processing services to the global oil and gas, minerals and resource industries. Terrex has the largest seismic source fleet in Australia, utilising 2D, 3D and 4D seismic acquisition and processing technologies to accurately image complex subsurface geology.

Terrex founder and Executive Director Steve Tobin established the company over 30 years ago and has developed long-term customer relationships and a respected senior management team. As a result, Terrex is Australia’s most experienced surface and subsurface earth imaging solutions provider with an unparalleled track record of successfully delivering high quality seismic programs.

Terrex has extensive seismic acquisition experience, having operated seismic crews in all major Australian onshore sedimentary basins as well as New Zealand, PNG and Iran. With over 900 successful onshore seismic surveys, Terrex provides services by maximising the value of each client’s exploration budget, adhering to its core values of safe performance, high-quality data acquisition and value-for-money.

Allegro II’s investment will be used to assist the company to capitalise on the resource sector’s market recovery and enable the acquisition of new technology to provide its customers with the world’s best-practice subsurface seismic imaging technology solutions across the resource industry.

Return to Private Equity Portfolio

VPEG 2