UPDATE 1-Electra's Allflex sale cashes in on livestock control boom

Fri May 3, 2013 8:32am EDT

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By Chris Vellacott

LONDON, May 3 (Reuters) - Private equity firm Electra Partners is selling out of animal tagging company Allflex after 14 years, banking the rewards from ever stricter livestock controls prompted by a string of food scares.

Electra said on Friday it has received a binding offer worth $1.3 billion from private equity peer BC Partners, amounting to $630.5 million gross proceeds for Electra's clients.

According to Electra's website the group first invested $45 million in Allflex 14 years ago as part of a $168 million management buyout from Goldman Sachs.

Proceeds to the listed unit Electra Private Equity will be $398 million pounds, representing a gross return of 15 times the original cost, Electra said. This equates to an internal rate of return - a common measure of private equity returns - of 28 percent.

"This is a fantastic result for Electra," analysts at Liberum said.

According to research by the European Private Equity and Venture Capital Association, the IRR pooled average earned by private equity funds between 1998 and end-2011 was 7.4 percent.

Electra bought Allflex in 1998 after the European Union tightened food traceability rules in the wake of the Bovine Spongiform Encephalopathy (BSE) crisis, commonly known as "Mad-Cow disease."

Subsequent crises, including a 2001 foot and mouth disease outbreak in the UK, led to tighter supervision of how livestock is sourced and tracked in Europe, north America and Australasia.

This boosted the fortunes of Allflex, helping it grow from a low-tech maker of plastic ear tags for cows to a world leader in high-tech labelling, according to David Symondson, Deputy Managing Partner at Electra Partners.

"Over 14 years the product range has gone from a yellow plastic tag to electronic tags, to tissue sampling tags, to different species. We do implants used for domestic pets, fish, salmon in the US and possibly salmon farms around the world in future," he said.

A recent scandal in Europe, where beef products sold in supermarkets were found to contain horse meat, could also benefit the firm, he added.

Enabling officials to trace animals from birth to slaughter has also made it easier to enforce controls on livestock imports from outside the European Union, Symondson said.

"I think today about 30 percent of the world's livestock is identified so there is potential for significant growth in the future as different countries jump on the bandwagon," he said.

Allflex is primarily based in France and the sale requires French regulatory approval.

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