- Golden Gate paying $1.215 bln for Dow Chemical unit
- Debt level of 6x EBITDA is close to average for 2014
- Five Point sees discounts for smaller MLP deals
The San Francisco buyout firm will finance the $1.215 billion acquisition with total debt of 6x EBITDA, according to a report by Thomson Reuters. That multiple includes 4.2x for the senior debt portion of the deal.
In a financing package led by J.P. Morgan, the Angus Chemical purchase includes a $355 million term loan, a 150 million euro-denominated term loan, $225 million in unsecured notes and a $65 million revolver. The total debt package adds up to $795 million, leaving a potential equity portion of $420 million, or just under 35 percent of the total purchase price. The deadline on the loan commitments is Jan. 22, according to Reuters.
A Golden Gate spokeswoman did not comment.
While debt-to-EBITDA purchase price multiples vary by industry and target, the average LBO deal leverage amounted to 5.74x EBITDA in 2014 as of Nov. 30, according to S&P Capital IQ.
While one could argue the average has climbed too high, Angus Chemical’s debt level doesn’t seem overly aggressive relative to what’s going on with LBOs overall. It also won’t attract the scrutiny of banking regulators who have been taking a closer look at deals above 6x EBITDA debt.
By contrast, Vista Equity Partners $4.2 billion take-private of Tibco Software will carry debt of about 11x EBITDA, but it will include a large equity check of $1.6 billion, or about 38 percent of the total purchase price. When including cost savings, the debt multiple comes down closer to 7x EBITDA, however, according to Moody’s.
For its part, Golden Gate Capital sees potential for Angus Chemical Co as “the world’s only company dedicated to the manufacture and distribution of nitroalkanes and their derivatives,” which are used in paints, coatings, personal care and pharmaceuticals. The deal is expected to close in the first quarter.
“We are excited by the growth potential of this business,” Rajeev Amara, managing director at Golden Gate Capital, said in a prepared statement.
Five Point sees favorable prices
Five Point Capital Partners, which just closed its Fund I and Fund II with $450 million in commitments, sees plenty of opportunities for energy infrastructure assets of $50 million or less, a realm with relatively few competitors. The Woodlands, Texas-based firm said it’s snapping up deals at about one-third of the EBITDA multiples of publicly traded master limited partnership (MLPs).
Targeting family-owned outfits with constrained capital, Five Point sees an opening for its expertise in the energy space among its team of deal makers, led by David Capobianco, managing partner, and Matthew Morrow, partner. Morrow comes from an operating background as former CEO of Iberdrola Energy Holdings, while Capobianco previously worked for Vulcan Capital, Greenhill Capital Partners and Harvest Partners.
Five Point typically purchases infrastructure assets for 4x to 6x EBITDA. That’s a hefty discount to the 12x to 16x EBITDA multiples of larger, publicly traded MLPs. If oil and natural gas prices stay depressed, discounted prices will become more common – or maybe just the new normal.