Norit

Norit was founded in 1918, as a producer of activated carbon, a product initially used in the purification of air and water. In 1996, the company began expanding into more advanced purification systems and clean process technologies for purification through a combination of organic growth and acquisitions.

Why was the investment made?

Norit was a secondary acquisition from a Dutch private equity firm. DH had developed a strong relationship with the company’s management team and being their preferred partner helped to secure the investment. Indeed, DH was the only private equity house in the auction process.

Norit enjoyed a global footprint with international manufacturing facilities and a distribution network and service support in more than 150 countries. The company had a strong business model, with end-to-end services that generated high recurring revenue and margins. Its operations included research and development (R&D), engineering and manufacturing.

At the time of DH’s acquisition, the company was managed centrally and operated through two divisions: Activated Carbon and Clean Process Technologies.

Norit’s Activated Carbon products were widely used to remove pollutants, contaminants and other impurities from water, air and other liquids and gases in an efficient and cost-effective manner. This included power plants to remove hazardous pollutants, water facilities to remove impurities, food and beverage plants to filter products for human consumption, as well as automobiles to prevent vapour dispersion in fuel systems and air filters to improve passenger experience.

The Clean Process Technologies business offered components, systems and integrated solutions for water and other liquid-processing industries such as beverages, non-solid foods and pharmaceuticals. Products and applications included membranes for water filtration, beer filtration, waste water treatment, CO2 recovery systems and quality control systems and other components used in the filtration process.

What happened?

Focus on innovation

Norit accelerated its product development cycle under DH’s ownership with market-driven projects representing 80% of total R&D expenditure. In 2009 alone, the Clean Process Technologies business launched 15 products. By 2010, 30% of revenues generated were from products introduced in the previous five years.

In the Activated Carbon business, Norit was the first player to enter the fast-growing mercury removal segment by launching a new product range. US Department of Energy-sponsored studies referred to these products as the benchmark for mercury removal at coal-fired utilities.

Capacity expansion

DH supported significant capacity expansion programmes in both divisions, ensuring the company capitalised on strong growth prospects in its end markets.

Norit’s Activated Carbon products are used for a number of industrial applications, one of which is to remove mercury from flue gas in coal-fired utilities. In anticipation of the strengthening of regulations governing mercury emissions in North America, the company expanded its production capacity to meet a rise in demand for Activated Carbon. DH oversaw the addition of two new multi-hearth furnaces at the facility in Marshall, Texas and set up Norit’s first Activated Carbon plant in Canada as part of a joint venture. DH provided additional capital of €50m to fund this expansion.

Growth in the Clean Process Technologies business was driven by significant capacity expansion of its flagship brand X-Flow, which produces membranes for water purification. Under DH’s ownership, Norit invested in two state-of-the-art proprietary spinning lines for membranes and assembly lines for modules in the Netherlands, which doubled production capacity in Europe.

Creation of two independent businesses

Despite the focus on similar end markets, Norit’s Activated Carbon and Clean Process Technologies businesses had few synergies and no overlap in competitors. DH successfully separated the divisions into independent businesses to facilitate separate exits – both to trade buyers which maximised value for investors.

What was the outcome?

Under DH’s ownership, Norit significantly increased its revenues and profits. Between 2006 and 2010, sales grew almost 50% while EBITDA margins increased from 13.4% to 20.9%.

With the expansion programme, Norit became the world’s largest producer of activated carbon products, with around 150 different activated formulations for a broad spectrum of industrial applications.

In the Clean Process Technologies business, the margin increase was achieved by increasing the percentage of high-margin consumables, such as membranes, as a percentage of total sales.

In the Activated Carbon business, the margin increase was achieved by shifting the business from more commoditised applications in the water area towards higher margin applications such as powdered activated carbon for mercury removal applications or activated carbons for use in the production of herbicides and gold processing.

Exit

In May 2011, Norit’s Clean Process Technologies division was sold to a trade buyer for €503m.

In July 2012, Norit Activated Carbon was sold to a trade buyer for $1.1bn, returning a further €481m.

The total return on the Fund V investment was 2.5x. This equates to a gross IRR of 23%.