KKR continues Siemens exit strategy

US-based buyout firm Kohlberg Kravis Roberts has continued its preparations to exit all seven businesses acquired from Siemens by putting Demag Cranes up for flotation and planning to sell Mannesmann Plastics Machinery to private equity peer Madison Capital Partners.

If the latest two exits do go ahead as planned, KKR would just be left with ceramics maker Argillon under its Demag holding company.

KKR has picked Goldman Sachs and Lehman Brothers to jointly run its planned flotation of German machinery operator Demag Cranes after merging it with existing portfolio company Gottwald Port Technology. The price range was set on June 7 at €26–€31 per share, with KKR and Siemens, which retained 19% of Demag, trying to sell 14.95m shares. KKR would be left with a 29% in holding in Demag Cranes after the IPO.

At the upper end of the range, Demag Cranes would raise €463.5m (US$594m) and the float comes amid booming demand for port services on the back of global trade. In the UK, buyout and infrastructure funds and trade peers have targeted port operators P&O, AB Ports and Peel Ports, while Finland-based KCI Konecranes’ shares have more than doubled in the past 12 months.

Demag Cranes posted interim sales of €465.2m for the six months to end-March, up 19% from the same period a year earlier. Earnings before interest and tax increased by 64% to €30.9m.

Separately, Chicago-based private equity firm Madison has agreed to acquire Germany-based Mannesmann Plastics Machinery (MPM) for about €700m (US$897.4m). HVB provided debt to Madison.

MPM is the world’s largest group of brand manufacturers in the field of plastics and rubber processing machinery, and is the global market leader in injection moulding technology.

In February, MPM sold French injection moulding subsidiary Billion to the company’s management for an undisclosed sum to concentrate on four brands: Krauss-Maffei, Demag Plastics Group, Netstal and Berstorff.

If completed, the deals would mark another very profitable exit for KKR from Demag Holding. In July 2002, KKR paid Siemens €1.69bn for 81% of seven businesses, reportedly investing US$409m of equity in the transaction, according to a fund prospectus seen by Bloomberg, with IFR putting the debt financing package at €1.225bn, arranged by CIBC, HVB and JPMorgan.

Of the seven businesses, JPMorgan handled the sale of Stabilus, a producer of gas springs and hydraulic dampers, which was bought by Montagu Private Equity for an estimated €500m; and Landis & Gyr, a Swiss metering firm formerly called Metering, to Bayard Energy, the energy management and conservation division of Australia-based Bayard Capital, for reportedly less than €400m.

The seventh and final asset acquired from Siemens and held in Demag Holding was Network Systems, a provider of network integration services in the UK, France and Italy, which was renamed Omnetica by KKR and sold in part for Kingston Communications shares last year.

KKR has also refinanced Luxembourg-based Demag Holding, which had annual sales of €2.2bn last year from MPM, Demag Cranes, Gottwald Port and Argillon after the sale of Stabilus, Omnetica and Landis & Gyr. In 2002, all seven units had a combined turnover of €3.5bn.

In March 2005, Demag’s €940m recapitalisation through Commerzbank and HVB was fully subscribed, according to IFR. Total leverage was 3.9x compared with 3.4x on the original buyout in 2002. KKR also refinanced €250m of vendor loan notes in 2004.

Such strong exits from the German market were part of the reason KKR was able to raise US$5bn through a Euronext Amsterdam-listed vehicle last month, which increases its capacity to fund ever-larger buyouts.

James Mawson