Since the demise of Greensill Capital threatened to tear apart Sanjeev Gupta’s business empire, the metals mogul has managed to keep it going thanks to a commodities boom and the patience of Credit Suisse.

The industrialist this weekend announced a restructuring of its Australian operations with the Swiss bank, which funneled more than $ 1 billion to Gupta through its suite of supply chain finance funds linked to Greensill. At the same time, its UK metals factories will receive new funding of £ 50million.

The long-awaited deals are vital for GFG Alliance, the collection of rags from metal factories that Gupta has paid for with more than $ 5 billion in loans from Greensill. But seven months after the latter’s failure, Gupta’s greatest threat to keeping his empire intact arose from an unlikely source.

A group of executives from American Industrial Partners, a little-known and value-conscious private equity firm, arrived last week at the Gupta aluminum smelter in Dunkirk on the north coast of France.

Dino Cusumano, Danny Davis, Zac Carson and Max Holmes had a simple message for the hundred workers gathered at the foundry considered to be the jewel in the European crown of Gupta: the American buyout company was now in the driver’s seat.

For AIP, which normally roams the unloved corners of the US industrial economy in search of buyout targets, taking control of Europe’s largest aluminum smelter would be a coup. For Gupta, the loss of the site would be a big blow, depriving his empire of a vital source of income with metals trading at its highest level since 2007.

Gupta responded with a threat of legal action, saying AIP’s claim that his company had defaulted on its debts to the private equity firm was “incorrect” and that AIP was trying to buy the company. ” cheap “.

New York-based AIP began buying out debts at GFG’s aluminum smelter and plant in Duffel, a suburb of Antwerp, in April, just a month after Greensill filed for bankruptcy.

“A lot of people would have been interested in the asset, but the problem was that it was not for sale,” said a senior official at the French Ministry of the Economy, whose approval is needed since the foundry of Dunkirk is considered a “strategic asset”. .

AIP “was quick and willing to pay 100% of the cost of the debt to take control,” the person said. “We had no objection.”

Kipling inspiration

GFG was an attractive target for AIP. Problems in Gupta’s affairs worsened in May when the UK’s Serious Fraud Office said it was investigating suspicions of fraud and money laundering at GFG. The group has denied any wrongdoing.

According to its website, AIP is inspired by Rudyard Kipling The jungle Book. A page with details about his team – showing that 30 of his 32 partners are male – is titled: “The strength of the wolf is the pack, and the strength of the pack is the wolf”, a reference to the collection of stories from 1894, in which the clauses are reversed.

With an investor base ranging from the UK’s Essex County Council pension fund to the Alaska sovereign wealth fund, AIP’s team of former bankers and former industry leaders have amassed business. across the United States.

AIP companies sell everything from tires to flooring to diapers. He agreed last month to buy the defense training unit from defense giant Raytheon.

It’s a “value-driven” company that buys businesses it hopes to “transform”. . . be more attractive, ”said Alyssa Fiore, investment manager at a Massachusetts retirement group, in a meeting where she proposed a $ 75 million commitment to her fund in 2019, likely mirroring the speech that the buyout group does to investors.

In private equity, “everyone says [their own firm is] focused on operations, but AIP has more credibility than most when they say that, ”said an executive whose company invested in AIP. “They look for situations where there is complexity” rather than buying “easy businesses that have already been cleaned up” by other buyout groups.

With around $ 7 billion under management, it’s a minnow compared to the more well-known names in the industry such as Blackstone and KKR.

A $ 406 million fund that AIP raised in 2007 was in the top quartile for performance among its peers, according to data provider PitchBook. But its three most recent funds are less impressive, ranking in the third or fourth quartile.

Still, Aberdeen Standard Investments, whose private equity trust Standard Life has committed £ 15million to the fund, described AIP in a 2019 report as a ‘best-in-class’ buyout group.

Crossed paths

AIP had crossed paths with GFG before the clash around the Dunkirk plant. Their connection has its roots in the 2018 buyout of aluminum company Aleris by metals supplier Novelis in a $ 2.6 billion deal.

Competition regulators forced the merged company to sell two Aleris factories – one in Duffel, which Gupta bought, and one in Lewisport, Kentucky, which AIP acquired and renamed Commonwealth Rolled Products.

This connection paved the way for GFG to approach AIP about a sale of the Duffel plant in the aftermath of Greensill’s failure, three people with knowledge of the matter said. Gupta eventually signed initial deals to sell both Duffel and the Dunkirk plant to the private equity group, including a price deal, the people said.

However, the talks broke down in July this year. At the time, Gupta was in talks with Glencore over an alternative deal that would have allowed it to retain control of its European aluminum business. GFG later said the AIP talks collapsed due to the AIP’s “gross undervalued assessment of the company.”

Jay Hambro, GFG’s chief investment officer and one of Gupta’s most loyal lieutenants, had backed AIP’s proposal, laying the groundwork for a clash with his boss. Hambro is now on gardening leave, according to two people familiar with the matter. Hambro declined to comment.

While Gupta was in talks with Glencore, AIP bought out a second part of the Dunkirk plant’s debt, this time from BlackRock, which would later allow it to seize the shares of the French company that owns the foundry.

But even with a booming aluminum market, AIP will face challenges in Dunkirk, which employs around 630 people and produces 280,000 tonnes of light metal each year.

“What matters to us, as employees, is that the AIP does not come and pump all of our profits,” said Pascal David, leader of the CFE-CGC union at the foundry. “We know how [private equity funds] work, their goal is to give profits to their investors.

AIP leaders told staff that all jobs and contracts will be kept.

The buyout company is no stranger to the controversy that can arise with struggling businesses. In 2017, he avoided a sharp decline in the value of U.S. energy equipment maker Babcock & Wilcox Enterprises, by selling its 10% stake in the company shortly before problems with its renewable energy unit hit. be revealed, according to court documents from Babcock shareholders.

AIP received what an aggrieved shareholder described in a lawsuit as an “artificially inflated” price on the sale of the stake. The buyout company got extra sweetener by giving the company $ 176 million in emergency loans at a reasonable 10% interest rate.

AIP has never been charged with wrongdoing and was not the target of the trial. Babcock shareholders received a $ 19.5 million settlement in exchange for dropping their claims against the company. The AIP declined to comment. Babcock declined to comment.

Like the buyout of the Dunkirk foundry, Babcock’s investment concerned the Lightship subsidiary of AIP, which manages its lending activities. The same unit bought Rand Logistics, a New Jersey-based shipping company, in a debt-for-equity swap in 2017, then sold a stake to credit investor Oaktree.

Once nicknamed Britain’s ‘savior of steel’, Gupta celebrated its 50th anniversary last month in lavish style on the Greek island of Mykonos. Amid last weekend’s euphoria over the Australia deal, AIP’s intervention is a sobering reminder of the challenges Gupta still faces.

Additional reporting by Owen Walker in London