Investment Rationale

• Xyratex had a proven management team
  with a strong track record of expanding
  the company on a global scale
  
  
• Continued strong growth in the data
  storage market, driven by by regulatory compliance for large enterprises and
  new storage needs in small business
  and consumer markets
  
  
• As OEMs continued to outsource, the
  company’s best-in-class engineering and
  delivery reputation provided a strong
  platform for winning new customer
  accounts
  
  
• There was upside potential from its 2–3
  year R&D programmes, which could allow
  access to large new markets
   
  

Sourcing & Conversion

• The TMT team had identified that the
  electronic storage sub-sector was likely
  to deliver 10% to 15% long-term
  structural growth
  
  
• HgCapital led a complex MBO of the
  company via a flexible open offer to
  Xyratex’s 1,200+ private shareholders
  
  
• HgCapital was able to deploy a large
  internal team and leverage its TMT
  sector expertise to complete intensive
  commercial diligence across three
  continents within a six-week timeframe
  

Portfolio Management

• Recruited a world-class independent
  Chairman and two further Non-Executive Directors with proven experience of
  $1 billion+ market cap NASDAQ companies
  
  
• Introduced a more rigorous strategic
  planning process and improved board
  reporting
  
  
• Supported the company’s policy of
  increasing long-term R+D investment by
  over $10 million to drive continued growth
  of over 20% in revenue and profits, rather
  than maximising short-term profits
  
  
• Helped management to complete five
  sizeable and strategically important
  acquisitions
  

Performance

• Following strong trading, HgCapital
  elected to pursue an early IPO of the
  company on the NASDAQ in July 2004,
  achieving a valuation of $400 million:
  this has been the most successful
  NASDAQ IPO by a UK technology
  company since 2001
  
  
• Returned initial proceeds to clients
  while retaining a substantial equity
  stake
  
  
• Following continued profit growth
  and performance above expectations,
  HgCapital sold down its stake in
  January 2008 and achieved a full exit
  generating a multiple of 2.2x original
  cost and a gross IRR of 32%