After scanning Europe’s electronic distribution market for the past two years, New York-based private equity firm Clayton Dubilier & Rice Inc. (CD&R) – leading an investment consortium – signed an exclusivity agreement with French retailing group Pinault-Printemps-Redoute SA to acquire control of Rexel SA, a key competitor in the R135 billion market for wholesale distribution of electrical products.
The investment group, which also includes France-based investment company Eurazeo SA and Merrill Lynch Global Private Equity, agreed to purchase Pinault’s approximate 73.5% ownership stake in Rexel for an enterprise value of R3.7 billion ($4.9 billion). CD&R, which has years of experience in the distribution sector, will gain operational control of Rexel.
For Pinault, which plans to focus more on its retail of luxury goods, selling Rexel will mark the final stage of its strategic disposals of business-to-business companies that it began in September 2002. The sale will also reduce Pinault’s debt by approximately
R3 billion pre-tax. The company had been trying to reduce its debt since it completed it’s acquisition of Gucci Group NV earlier this year.
Thus far in the discussions, the buyers have agreed to pay R38.50 per Rexel share, which will see that Pinault gets R1.9 billion for its 49 million Rexel shares. The same price-per-share offer is in affect for minority shareholders as well, which would carry an additional R1.02 billion price.
A source close to the deal told Buyouts that the equity control of Rexel shakes out with CD&R at 36.6%, Eurazeo with 35.6% and Merrill Lynch with 27.8 percent. To finance the deal, the consortium will tap the vaults of Merrill Lynch, JP Morgan, HSBC, Royal Bank of Scotland and Morgan Stanley.
Rexel, listed on the Paris stock exchange under ticker symbol RXEEF, has annual revenues of R6.7 billion, more than 21,000 employees and operates in 29 countries worldwide. Approximately 36% of the company’s sales are generated in North America, 28% in France, 27% in the rest of Europe, and 9% in the rest of the world.
“Part of what attracted us to Rexel is that it’s a great spread-of-risk business in a highly fragmented industry. It has more than 100,000 customers, completes thousands of transactions on a per annum basis, is number-one in the world, and yet only has 6% of the entire market,” said CD&R Principal David Novak.
This is not CD&R’s first time dealing in the electronics distribution space. In 1994, the firm acquired electrical-supply distributor Wesco Distribution Inc. from Westinghouse Electric Corp. in a $340 million LBO. In 1998, the firm sold Wesco to a consortium led by the Cypress Group LLC for $1.1 billion.
CD&R has also been busy in the non-electric side of the distribution sector. Earlier this year the firm acquired laboratory supplies distributor VWR International from Darmstadt, Germany-based Merck KGaA for $1.65 billion. In 2002, CD&R acquired Britain food distributor Brake Brothers, for GBP433.7 million. The company supplies food to pubs and restaurants and is the country’s leading frozen food distributor. In 2001, the firm sold food distributor, Alliant Exchange, to Royal Ahold-held U.S. Foodservice Inc. for $2.2 billion after acquiring it for $690 million from the Philip Morris Co.s in 1995.