Gleason Taken Private In First Vestar IV Deal –

Vestar Capital Partners agreed to buy publicly traded machine-tool maker Gleason Corp. for $23 per share, or approximately $332 million, the first deal from its $2.5 billion megafund.

The buyout was led by Vestar Capital and Gleason senior management and represents a premium of about 31% to the average closing price of Gleason shares during the past 60 trading days, the company said.

Sander Levy, a managing director at Vestar Capital said the firm committed about $55 million to the deal with capital from its fourth fund, which had a final close in November totaling $2.52 billion. The deal had a conservative capital structure, with $185 million in debt financing provided by Bankers Trust Co., a subsidiary of Deutsche Bank. Levy said the total debt financing was a multiple of less than four times Gleason’s earnings before interest, taxes, depreciation, and amortization (EBITDA).

Companies like Gleason are out of favor with Wall Street, Levy said, leaving them unattractive to Internet-obsessed investors.

“[Gleason] is a classic example of a mid-market industrial company that has been underappreciated by Wall Street. It’s not a sexy company, it doesn’t have a dotcom on the end, but it’s a global company,” Levy said.

Levy said his firm, which focuses on management-led acquisitions, liked Gleason because it has well-established senior management and an enduring franchise with a long operating history.

Gleason, which was founded in 1865, manufactures machines that make gears used by industrial companies, including automobile makers and aerospace companies.

As a private company, Gleason will have more flexibility in making investment decisions without having to worry about how Wall Street reacts.

“We are making a very long-term investment backing this management group,” Levy said. “The company has nice opportunities to grow, particularly in after-market products.”

The deal was announced on Dec. 9. At press time shares of Gleason were trading at $23.25 per share on the New York Stock Exchange.

Chief Executive James Gleason, senior members of management and the Gleason Foundation-which is participating in the buyout-together own about 15% of Gleason’s outstanding shares. They have agreed to vote their shares in favor of the merger at a special shareholder meeting expected to be held in the first half of 2000.

Gleason is the third company Vestar has taken private this year. In July it brought women’s apparel company St. John Knits private in a deal worth about $520 million. It also bought Hollywood, Fla.-based Sheridan Healthcare in March as a going-private investment.

While Vestar’s latest fund is a huge increase from its previous fund of $803 million, Levy said the firm’s strategy remains unchanged-sticking to management buyouts in middle market companies.

“It’s business as usual, we’re really going to stick to our knitting,” he said.