GLOBAL ALTERNATIVE ASSET MANAGEMENT
CASE STUDY
How Carlyle Creates Value
Deep industry expertise. Global scale and presence. Extensive network of Operating Executives. And a wealth of
investment portfolio data; we call it The Carlyle Edge. These are the four pillars of Carlyle’s value creation
model. By leveraging these core capabilities and resources—Carlyle has established a 26-year overall
track record of investing in companies, working to make them better and serving our investors’ needs.
A long-term investment partner, Carlyle helped Kuhlman Electric
weather a severe market downturn and transform the company into
a dynamic and thriving enterprise.
AT A GLANCE
Kuhlman Electric Corporation
Industry: Industrial
Region/Country: Kentucky
Fund: Carlyle Partners II, L.P.
Acquired: October 1999
Status: Exited
About Kuhlman Electric and the Transaction
Carlyle’s U.S. buyout fund, Carlyle Partners II, L.P., acquired Kuhlman Electric
Corporation in October 1999. Carlyle managed this investment through tough economic conditions resulting from California’s deregulatory program, the collapse
of Enron, major reductions in customer capital spending, falling wholesale prices
and the sector’s challenging credit crisis, Carlyle wrote down the investment to
zero. However, Carlyle remained committed to Kuhlman. In fact, Carlyle employees
personally invested additional capital to strengthen the company. Nearly 10 years
later, in August 2008, Kuhlman had executed a complete turnaround and was sold
by Carlyle to ABB, the global power and automation technology group.
Kuhlman was founded in 1894, which made it the oldest independent transformer
manufacturer in the industry, and had a long and successful history of providing power
transformers and related products to utility companies. At the time of the sale to ABB,
the company had approximately 800 employees and was headquartered in Versailles,
Kentucky, with manufacturing facilities in Versailles and Crystal Springs, Mississippi.
Key Value Creation Metrics
•Supported Kuhlman with millions of dollars of additional equity and
remained committed to the company’s management team through a
severe market downturn.
•Shifted Kuhlman’s strategic plan to focus on new business development
opportunities, creating a dynamic and thriving company.
•Established long-term customer contracts and secured relationships with
key suppliers of critical raw materials.
• Increased revenue by 26%, 26% and 45% during 2005, 2006 and 2007, respectively.
•Increased total headcount by 25% and operational capacity in its largest
business line by 60% from 1999 to 2007.
THE CARLYLE GROUP
1001 PENNSYLVANIA AVENUE, NW
WASHINGTON, DC 20004-2505
202-729-5626
WWW.CARLYLE.COM
60% growth
During Carlyle’s ownership,
from 1999 to 2007, operational
capacity in Kuhlman’s largest
business line, medium-powered
transformers, grew 60%, driven
by manufacturing technology
upgrades and extensive lean
manufacturing initiatives
to produce efficiency gains. Total
employment levels also rose during
this period, increasing 25%.
ABOUT THE CARLYLE GROUP
The Carlyle Group (NASDAQ: CG) is a global
alternative asset manager with $180 billion of
assets under management across 118 funds
and 81 fund of funds vehicles as of June 30,
2013. Carlyle’s purpose is to invest wisely
and create value on behalf of its investors,
many of whom are public pensions. Carlyle
invests across four segments – Corporate
Private Equity, Real Assets, Global Market
Strategies and Global Solutions – in Africa,
Asia, Australia, Europe, the Middle East,
North America and South America. Carlyle
has expertise in various industries, including:
aerospace, defense & government services,
consumer & retail, energy, financial services,
healthcare, industrial, technology & business
services, telecommunications & media and
transportation. The Carlyle Group employs
more than 1,400 people in 34 offices across
six continents.
Carlyle believes these selected case studies should be considered
as a reflection of Carlyle’s investment process, and references to
these particular portfolio companies should not be considered a
recommendation of any particular security, investment, or portfolio company. The information provided about these portfolio
companies is intended to be illustrative, and is not intended to
be used as an indication of the current or future performance of
Carlyle’s portfolio companies. The investments described in the
selected case studies were not made by any single fund or other
product and do not represent all of the investments purchased or
sold by any fund or other product. The information provided in
these case studies is for informational purposes only and may not
be relied on in any manner as advice or as an offer to sell or a solicitation of an offer to buy interests in any fund or other product
sponsored or managed by Carlyle or its affiliates. Any such offer
or solicitation shall only be made pursuant to a final confidential
private placement memorandum, which will be furnished to qualified investors on a confidential basis at their request.
During Carlyle’s ownership, Kuhlman designed, manufactured and marketed a
broad range of transformers for electric utility distribution systems that served
commercial, industrial and residential customers. Key customers included
large utilities, such as American Electric Power, Duke Energy, Progress Energy,
Southern Company and Southern California Edison.
Positioning the Company for Growth
When Carlyle invested in Kuhlman in 1999, the electric utility industry was
strong, and Kuhlman’s sales and revenue were increasing. Shortly after the
investment, however, the electric utility industry was hit by a severe downturn.
Kuhlman confronted major challenges presented by California’s deregulatory
program, the collapse of Enron, major reductions in customer capital spending,
falling wholesale prices and the sector’s credit crisis. With declining unit volumes and price pressure, revenue dropped four consecutive years, including 17%
in 2002 alone. By December 2003, Carlyle had written down the value of this
investment to zero.
Despite these challenges, Carlyle remained committed to Kuhlman and supported the company’s leadership team as it persevered and managed through
the downturn. Together, Carlyle and Kuhlman took several key steps to save
the company.
Carlyle increased the amount of equity it invested in Kuhlman, allowing
Kuhlman to fund a series of strategic initiatives. Because the value of the investment was written down to zero, Carlyle did not seek additional investment from
its investors. Instead, partners at Carlyle invested millions of dollars of their own
money to keep Kuhlman afloat.
With Carlyle’s support and added capital, Kuhlman revised its strategic
plan to focus on manufacturing technology upgrades and new business development opportunities. The company implemented extensive lean manufacturing initiatives to produce efficiency gains. Kuhlman also established long-term customer
contracts and secured relationships with key suppliers of critical raw materials. It
expanded manufacturing capacity and its range of products and services, while
achieving best-in-class quality standards. From 1999 to 2007, operational capacity
in Kuhlman’s largest business line, medium-powered transformers, increased by
60% while performance and quality also improved.
Kuhlman’s Performance
During Carlyle’s ownership, Kuhlman weathered a difficult period for the
industry and emerged as a dynamic and growing company as market conditions
improved. Kuhlman’s financial performance reflected this turnaround as well.
For the fiscal years 2005, 2006 and 2007, Kuhlman’s revenue increased by 26%,
26% and 45%, respectively. In 2007, Kuhlman experienced record results in all
three of its operating divisions.
In addition, Kuhlman’s overall employment levels increased 25% during
Carlyle’s ownership. During the downturn, Kuhlman maintained a positive relationship with its unionized workforce, and organized labor was an important
part of the turnaround.