In an auction that went down to the wire, private equity firm LBO France came out of the process with majority ownership of Materis, spending $1.3 billion for the maker of aluminates, mortars, admixtures, refractories and paint components.
Prior to the sale, private equity shops Advent International Corp., The Carlyle Group and CVC Capital Partners owned 67% of Materis, while the company they originally bought their stake from, Lafarge S.A., held the remaining 33 percent. Lafarge will roll over approximately E20 billion of equity into the new acquisition, LBO France’s takeover, while the three financial sellers have exited completely. Advent, Carlyle and CVC Capital say they made two times the equity invested.
According to a source close to the deal, senior debt was provided by ING Finance France SA and France-based Credit Agricole. Intermediate Capital Group, a London-based financier, provided a mezzanine tranche. The source also said the debt-to-equity breakdown was $910 million to $390 million.
The Holding Period
In January 2001, Materis spun out from under the Lafarge umbrella, in a sale worth E890 million. During 33 months of ownership, in which CVC Director Bertrand Finet said the target grew approximately 4% annually, Materis purchased three add-ons: a Spain-based paint company and two U.S.-based mortar makers. Finet also said Materis’ EBITDA climbed to E195 in 2003 from E140 million in 2001, a 39.3% increase. CVC and Advent were the original team in the deal, but due to antitrust issues, Carlyle joined the mix shortly before the 2001 purchase.
“We did well, despite the difficult years,” said Eric Adjoubel, managing director and the pro leading the deal for Advent. “Argentina, one of our biggest markets, went into financial crisis shortly after our purchase, followed by an economic downturn in the U.S. and Europe. But our geographical diversity helped. We didn’t have much growth but always had a steady cash flow.”
Nevertheless, Materis pushed forward. “We reduced working capital, without closing any plants,” added Finet. “We had to change their culture, from that of a large corporation to an independent company.”
Finet also said there was a minimum amount of employee shuffling. “Our only major change was six months after our purchase when we brought in a new CFO.”
Two years after pulling Materis out of Lafarge, the sellers began to shop the cement maker. The auction gained momentum in April when Finet said the firm sent the book to many firms and strategic companies, creating a maelstrom of activity.
“This was the right time to sell,” explained Adjoubel. “We did a decent job creating value, but were unsuccessful at acquiring the big add-ons. In order to try again [to acquire a large add-on and substantially increase top-line growth, we would have had to own the company another two or three years, and that would have hurt the IRR.” (Meanwhile, Advent is still keeping busy in this sector, having recently purchased Bollix, a Krakow, Poland-based cement maker.)
The sellers narrowed the potential buyers down to three finalists: Bain Capital, Vestar Capital Partners and the eventual winner, LBO France. Finet credits timing as the biggest factor in the choosing of a buyer.
“Yes, the money was a little better [from LBO France], but more important, they finished all due diligence on time, and we felt they could deliver, so we went with them.”