Bear Stearns Brings In Aearo –

After an eight-year stay with Vestar Capital, Aearo Corp. has found a new home in the portfolio of Bear Stearns Merchant Banking, which agreed to pay $385 million to acquire the Indianapolis-based company, including the assumption of $210 million in debt.

Aearo manufactures personal protection gear and focuses primarily on the hearing, eye, face, head and respiratory areas of market, and sells equipment such as goggles, earplugs, respirators, hard hats, and gloves. The company has more than 1,500 employees worldwide, and in 2003 posted net sales of $326.9 million.

“This is an old-fashioned type of buyout for us,” Bear Stearns Senior Managing Director Douglas Korn said. “The management team here has really taken a consumer goods approach to driving this business through branding, rapid product generation, and basically just a more modern method to running a company in this industry.”

To finance the $385 million deal, Bear Stearns Merchant Banking has reportedly tapped Deutsche Bank Securities and Bear Stearns to contribute $350 million of debt, taking the form of a $125 million term loan and a $50 million revolver, with the balance covered by a subordinated debt and high-yield package. Vestar, meanwhile, will maintain a 10% stake in the business, while Aearo management, led by CEO Michael McLain, will co-invest as well. Deutsche Bank advised Aearo on the sale.

Vestar Pockets Return

Through the transaction, Vestar will realize a return of roughly 4x its investment, and record an IRR of approximately 17% over its eight-year holding period. The firm originally acquired control of the business for approximately $200 million, with an equity contribution of $31 million. And while Aearo made a number of notable acquisitions during its time in the Vestar portfolio, including purchases of Peltor and Safety Optical, they were accomplished without Vestar adding any incremental equity to its original investment.

“During this investment we were able to navigate through a couple of challenges,” Vestar Managing Director Norman Alpert said. “We ran into some software installation problems that had a negative impact when we first acquired the business, and currency movements when the dollar was strong against the Euro didn’t help. But with the economic recovery and favorable currency markets, the business has started to go on a pretty good run. Plus, some of the initiatives that we instituted have started to kick in, and that helps.”

Aearo has also been able to grow despite the continued decline in North American manufacturing jobs, a factor that Alpert noted, “has really been a wind in our face.”

However, while high unemployment figures mean there are potentially fewer people wearing Aearo products in North America, the company has bolstered its presence overseas. “They’ve got a budding international presence, so we’re not entirely captive to what’s going on in North America. They’ve been able to grow during a very difficult economic period, particularly in the context of manufacturing jobs,” he added. “And on a relative basis, we’re expecting the next five years to look better in terms of North American manufacturing employment. If this company was able to grow in a period of rapid decline [in employment numbers], then they should be able to grow even more with job expansion.”

Bear Stearns used its $1.5 billion Bear Stearns Merchant Banking II fund for the investment, and following the deal the fund will be roughly half invested.


Buyer: Bear Stearns Merchant Banking

Target: Aearo Corp.

Seller: Vestar Capital

Advisor: Aearo: Deutsche Bank

Legal Counsel: Vestar: Simpson Thacher & Bartlett LLP, Bingham McHale LLP, Bear Stearns: O’Melveny & Myers LLP

Accountant: Vestar: Deloitte & Touche