Bodycote has agreed to sell its testing division to US private equity firm Clayton Dubilier and Rice for £417m (€518m).
The business has more than 130 laboratories across 25 countries, in which it tests “industrial materials, engineered components, pharmaceuticals and environmental conditions”.
Last year, the business made a £21m headline operating profit on sales of £176m, suggesting a deal multiple of nearly 20 times those profits.
However, a source familiar with the transaction said that the price was roughly 10 times this year’s expected earnings before interest, tax, depreciation and amortisation at the division.
The deal, which will be seen as a strong sign that leveraged buyouts of attractive assets are still possible, will also see the FTSE 250 engineer return £260m to shareholders.
The transaction includes the sale of 65 acres of surplus land in Canada, which will be exchanged for an unspecified vendor loan note, in addition to the £417m cash sum.
RBS and Barclays provided the debt funding for the deal, which covered 45% of the total purchase price, or £250m. The equity element was a reasonably high 55% of the total.
A source said: “As with similar transactions in the past, Clayton Dubilier and Rice aims to bring in operational expertise to the company rather than rely on financial engineering.”
More than two-thirds of the firm’s buyouts stem from industrial groups divesting unwanted divisions. Operating partner Fred Kindle will become Bodycote Testing’s chairman on completion of the transaction.
KPMG acted as financial adviser to Bodycote, with assistance from Credit Suisse and Lehman Brothers, who were also brokers. Clayton Dubilier and Rice was advised by Citigroup, and also Lehman.
Bodycote said it expected the deal to be complete by the end of October. That will leave Bodycote to concentrate on its thermal processing business. The company’s chief executive, John Hubbard, has decided to step down from his position.
Mark Fielding, an analyst at Citigroup, said the remaining business might now become a takeover target, pointing out that Swiss strategic buyer Sulzer had considered an approach last year.
However, he added that “any interested parties may hold off until there is more clarity on the broader economic outlook of the continuing group”.