Needing a financial lifeline to support its dramatic growth, injection molder Trend Technologies Inc. has been sold to one of Europe's largest private equity fund managers. The deal, completed March 6, shifts majority ownership of Trend, based in San Jose, Calif., to fund manager Doughty Hanson & Co. Ltd. The London-based venture-capital firm paid $317.5 million to assume a stake of about 90 percent in Trend.
The new owners immediately spoke of big plans for Trend, a maker of integrated plastic and metal electronic enclosures. The company's sales have risen from less than $100 million in early 1997 to $308 million last year.
Doughty Hanson would like to grow Trend, largely through acquisitions and new sites, to a $1 billion company by the end of 2002, said Jacqueline Reses, a partner in Doughty Hanson's New York office.
She added that her firm may take Trend public in the same time period.
Doughty Hanson has several potential Trend-related acquisitions on the table now — one for a company with more than $100 million in sales, Reses said. Trend is Doughty Hanson's first molding company.
"Our goal is to build Trend into a dominant global manufacturer of enclosures," Reses said in a March 8 telephone interview. "The way the industry is developing right now, we think someone can prove themselves to be a consolidator. We're giving Trend the right capital structure to do that."
Trend's customers include major computer-products makers such as Dell Computer Corp., Compaq Computer Corp., Cisco Systems Inc. and Sun Microsystems Inc.
Those companies want to develop more-localized manufacturing presences in Asia, Mexico and Europe, and expect their suppliers to join them there, said Trend marketing director John Millis.
Trend's former owner, Cleveland-based Riverside Co., wasn't prepared to fund that kind of growth.
"We looked at our customers and the amount of capital it would take to build [into Asia and elsewhere] to meet their needs," said Stewart Kohl, Riverside's managing general partner. "It outstripped the capital available. It was clear that we needed to find new investors to take Trend to the next level."
Riverside manages a $160 million investment fund. Doughty Hanson is much larger: The company controls a $2.5 billion fund and has invested in 37 companies with total sales of more than $12 billion.
Riverside acquired Trend, then known as Trend Plastics Inc., from Gino Cavallini in March 1997. During the past two years, Trend has acquired three companies, opened two other plants and introduced molding to two stamping facilities, Millis said.
"To sustain our annual 50 percent growth rate over the past two years and meet customer requirements, we needed to find other funding," he said.
Trend had accumulated debt to accomplish its goals, Reses said. Doughty Hanson has recapitalized the company by making a sizable $154 million cash equity investment to pare down debt, according to a report by New York-based Moody's Investors Service. Trend now is moderately leveraged, according to the report. At the deal's close, the company had total debt of $163 million and equity of $170 million.
Doughty Hanson also applied for a $175 million credit line to help with growth. Moody's assigned a B1 rating to the company, partly based on the recapitalization.
Moody's was encouraged by the deal with Doughty Hanson. The report said capital expenditures were sizable to create a `global footprint' for Trend's integrated molding and metal stamping facilities.
"If it is to remain a viable partner to [original equipment manufacturers] such as Dell, Trend must be in a position to support the manufacturing [increases] for new product platforms in all regions where ... manufacturing presence is required," the Feb. 28 report stated.
The company now has eight plants and about 2,800 employees. Trend ranked 24th on Plastics News' list of top injection molders in 1999, with North American molding sales of $197 million.
Trend already molds parts in Mexico and Ireland and is considering new plants in Southeast Asia and other regions, Millis said.
Riverside had considered taking Trend public to gain capital but decided the company was not large enough to attract Wall Street interest, Kohl said. Instead, Riverside shopped Trend to potential buyers during the past six months.
Riverside and several Trend executives, including Chief Executive Officer William B.R. Hobbs, retain small stakes in the firm.