Private Equity Funds Go Shopping In Europe

Global Finance, Jan 2005 by Platt, Gordon

New York-based private equity firm clayton, Dubilier & Rice, in its third European acquisition of 2004, led a group that agreed on November 30 to buy electrical equipment supplier Rexel from France's Pinault-Printemps-Redoute in a deal expected to be valued at $4.97 billion.

The transaction was the largest leveraged buyout of the year-to-date in Europe at the time. The proceeds will enable PPR, which owns the Gucci and Yves Saint Laurent brands, to pay down almost $4 billion in debt and to focus on the luxury goods and retail markets.

Private equity funds are buying up non-core businesses of European companies that are restructuring to improve their balance sheets.

European buyout activity as of December 1,2004, already had reached a new peak, some 12% higher than the record $109 billion for the full year 2003, according to Dealogic.

The Rexel acquisition teamed Clayton, Dubilier & Rice with Eurazeo, France s largest publicly traded buyout firm, and Merrill Lynch Global Private Equity.

Michel David-Weill, chairman of Lazard, the world's largest privately held investment bank, also is chairman of Eurazeo.

The trio of private equity firms signed an exclusivity agreement with PPR to acquire the 73.5% of the Rexel shares that PPR controls and to assume $1.5 billion in debt.

The group also will offer to acquire the remaining shares in Rexel held by the public, according to attorneys at Debevoise & Plimpton, which has represented clayton, Dubilier & Rice for more than 25 years and has assisted the buyout firm on all of its European acquisitions.

Rexel, which makes electrical switches, plugs and cables, has more than 21,000 employees and operates in 29 countries. Its Dallas, Texas-based subsidiary is the fourth-largest electrical distributor in the US.

Royal Bank of Scotland, JPMorgan Chase and Morgan Stanley arranged the financing for clayton's bid.

Last July, Clayton bought water-softener manufacturer Culligan from France's Veolia Environnement for $610 million. In February 2004 it acquired VWR International, which makes laboratory products, from Germany's Merck KgaA for $1.68 billion. Merck KgaA has no connection with Merck of the US.

Clayton, whose 29 partners include former General Electric CEO Jack Welch, agreed to pay an 8% premium on the market price for Rexel.

As the dollar lost strength in the second half of 2004, falling to a record low against the euro, US firms were forced to pay higher premiums for foreign acquisitions. The average premium rose from 6% in the first quarter of 2004 to 28% in October and November, according to Dealogic.

The biggest announced M&A transaction in the US in November was Kmart s agreement to merge with Sears Roebuck in a stockswap transaction valued at $10.9 billion.

The merger would create the third-largest retailer in the US after Wal-Mart and Home Depot.

It marks a comeback for Kmart, which filed for Chapter 11 bankruptcy protection in early 2002.

The deal was put together by Kmart chairman Edward Lampert, a disciple of investor Warren Buffett. Lampert, who once worked as an assistant to Robert Rubin at Goldman Sachs, says the goal for the combined company is to achieve a 10% operating profit margin.

"The merger will enable us to manage the businesses of Sears and Kmart to produce a higher return than either company could achieve on its own," he says.

-Gordon Platt