Advent International recently announced the acquisition of two industrial laundry companies in Brazil, for a total purchase price of approximately $10 million, approximately four times EBITDA.
Bank of Boston contributed all the debt equity, which totaled 25% of the total purchase price. The remaining 75% is equity from Advent’s $265 million Latin American Private Equity Fund II. Closed in June, the fund is approximately 15% invested.
“That number [15%] is a bit misleading. We have two significant deals, larger than the average deal down here, and we have taken them very far down the pipeline,” said Erwin Russel, Advent’s director in Sao Paulo. “Within two months time there will be significant growth.”
The acquired companies, Central Lav and Acqua Limp, have combined annual sales of $20 million, and once merged will become the second-largest industrial launderer in Brazil. Operations are located in the country’s largest metropolitan areas: Sao Paulo, Rio de Janeiro and Belo Horizonte.
Both companies have averaged annual growth of almost 40% back to 1997, when they were founded, according to Russel. Brazilian hospitals currently outsource just 30% of their laundry, which includes linens and uniforms. The remaining 70% is cleaned in-house, which, according to Russel, could account for tremendous growth potential. In contrast, European and U.S. hospitals outsource approximately 80% of their laundry cleaning needs
Russel expects Central Lav/Acqua Limp will be able to grow through acquisitions, due to the highly fragmented laundry sector in Brazil. “Private equity investors have been instrumental in the growth and consolidation of the European and American industries,” he added.
Advent pieced together its controlling stake by buying out several small shareholders, thereby simplifying the ownership structure. In addition, Central Lav/Acqa Limp will receive a capital injection from both Advent and the remaining founding shareholders, who will continue to act as management. This injection is designed to help the company realize its planned expansion.
Advent was one of the first private equity firms to close a deal after the Brazilian presidential elections. While the investment affirms Advent’s confidence in Brazil’s economic future, the firm protected itself by taking out a currency hedge for the first time in Brazil. Russel said Advent based that decision on concerns of short-term volatility in Brazil due to the political transition.
Advent International has $6 billion in cumulative capital raised and offices in 13 countries, financing more than 500 companies while raising $10 billion through public equity and debt offerings, since its founding in 1984.