Street Talk can reveal Alceon signed a deal on Tuesday to acquire 70 per cent of Shadbolt from founder Warren Shadbolt, who will retain the rest and continue to provide strategic input at the board level. It has also tapped well-regarded defence adviser and a long-time Alceon associate Mark Stevens to chair Shadbolt’s board.

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Shadbolt, founded in 1981, is an engineering fabrication and services provider to defence primes – industry parlance for a carefully vetted list of contractors that sell to the Department of Defence. It was most recently staffed on 149-year-old German shipbuilder Luerssen’s team for the Royal Australian Navy’s order of SEA 1180 offshore patrol vessels to replace the ageing Armidale-class patrol boats.

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The business is understood to be making about $50 million in annual revenue, and sees a $1 billion-plus-a-year addressable market across navy and natural resources. In addition to scoring a role on every Australian navy ship build since the Anzac-class in 1993, it has worked on supply vessel platforms and sustainment services.

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Its new private equity backer has form in the sector, previously investing in specialist contractor Eptec, which provided maintenance services to Collins-class submarines. Alceon netted its backers a 20 per cent-plus internal rate of return within three years, when it sold Eptec to Next Capital in 2020. (Eptec is once again on the auction block via MA Moelis.)

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“We’ve spent considerable time looking for the next platform asset in defence, given the significant activity across new fleet build and sustainment, and the overarching geopolitical developments,” Alceon PE’s David Wilshire said.

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“In this market, there are limited companies of sufficient scale and there is clear logic in a partnership with private capital to provide financial and strategic support, ultimately delivering defence what it needs in local manufacturing and service capability.”

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Stevens, who has continued to sit on Eptec’s board, said he had high hopes of Shadbolt.

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“This transaction is illustrative of the very reason I have partnered with Alceon PE. We have an industry of national importance, supported by considerable and increasing government spend, and yet the access to private capital is extremely limited,” he said.

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Wilshire and Zac Midalia, who co-head Alceon’s private equity business and are managing directors, focus on proprietary deals where they can invest alongside the founders of profitable and growing businesses.

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The duo recorded an IRR of about 35 per cent on the sale of a 65 per cent stake in Orange Hire to NYSE-listed giant United Rentals Inc earlier this year. Last year, their Nido Childcare business was one of the few IPOs to get off the ground, and secured AustralianSuper as a cornerstone investor.

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The portfolio also includes 50 per cent of automated agricultural equipment business Boss Engineering. Another investment, IT managed services business EFEX, is understood to be performing well ahead of a planned exit later this year.

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The unit recently hired Rahil Gupta, a Goldman Sachs banker-turned-investor, whose bets include Pet Circle, food chain Fishbowl and ophthamologist Sapphire. Alceon this month appointed former Goldman Sachs Asset Management partner David Gribble as its new chief executive.

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Originally published at https://www.afr.com/street-talk/alceon-pe-secures-70pc-stake-in-defence-contractor-shadbolt-20240730-p5jxnn

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