Vestar Slides Into FL Selenia –

Vestar Capital Partners has returned to the automotive lubricant space, agreeing to buy FL Selenia S.p.A. from European buyout shop Doughty Hanson & Co. in a E670 million ($725 million) deal. The transaction is expected to close by late September or early next month.

Italy-based FL Selenia supplies lubricants and other functional fluids for automotive, commercial, agricultural and marine applications. The company, originally founded as a division of Fiat Auto in 1912, has a global presence in the lubricant market. Under Doughty Hanson, it has continued to expand with acquisitions of Pennzoil-Quaker State’s Viscosity Oil at the end of 2000 and Italian lubricant producer Rondine earlier this year.

Despite the company’s growth, Doughty Hanson has tried twice but failed to float the company on the public market. The firm first postponed FL Selenia’s scheduled IPO in July 2002 and delayed a proposed IPO again in August of the same year, citing lackluster market conditions. The poor sentiment was not confined to FL Selenia, with such names as luxury goods maker Prada also striking out with an IPO last year.

However, the company’s failure to gain access to the public market opened the door for Vestar, which capitalized on the circumstances to open up proprietary negotiations with Doughty Hanson for FL Selenia.

“This was a one-on-one negotiation,” Vestar President Robert Rosner said. “No bankers, no book, no formal auction…We began discussing the opportunity after the floatation fell apart. Once the IPO was put on hold, the opportunity for the management team to lead a buyout was significant because it allowed them to invest some capital behind the company.”

While Rosner would not give exact details on the planned financing arrangement, he said the E670 million deal will be comprised of over E200 million in equity, with incumbent lender Mizuho Corporate Bank and JP Morgan providing senior debt. Reportedly, the transaction also includes an earnout that is based on FL Selenia’s future performance or the possibility of an IPO.

For Doughty Hanson, which acquired the company in 2000, the exit represents a minimum return of 2.4 times on its original equity stake and an IRR of 30 percent. The sale comes at an opportune time for the firm, as it is in the process of raising its fourth fund, a proposed E3 billion vehicle.

Glad to be Back

Meanwhile, for Vestar the sale represents a return to the automotive product space, an area where the firm and its partners have seen success in the past. Specifically, Rosner along with others at Vestar in 1986 participated in First Boston’s $800 million buyout of Union Carbide’s home and automotive products business, which controlled the STP, Prestone and Simonize names, as well as the Glad trash bag brand. First Boston eventually floated First Brands in an IPO, and following that Vestar reunited its partners with the business through the acquisition of Prestone Products Corp. in 1994. “Our firm has significant experience in the sector, and the management team at [FL Selenia] liked that we weren’t new to the language [of the sector],” Rosner said.

In targeting FL Selenia, Vestar was attracted to the company’s strong brand awareness, with a portfolio of products that includes Selenia, VS, HPX, Ambra and Paraflu, among others. The company has also shown strong cash flow characteristics, with sales of more than E530 million and EBITDA approaching E90 million.

To grow the business, Vestar will continue to diversify FL Selenia’s end markets and expand geographically. “This company has a terrific growth opportunity on a number of different axes…and we’ll continue to introduce new products. The company also has a significant distribution business, which should help, but we’ll also look to pursue an acquisition strategy to support the [organic] growth,” Rosner said.

Vestar used its $2.5 billion Vestar Capital Partners IV for the transaction. The FL Selenia acquisition is the third European investment for the firm in the past 12 months, coming on the heels of the firm’s buyouts of SAB Wabco and ZML in the fall of 2002.

The deal comes amid a flurry of other activity in Italy, which has also seen the recent acquisition of Seat Pagine Gialle by Permira, CVC Capital Partners, BC Partners and Investitori Associati for E5.65 billion. Additionally, The Carlyle Group teamed up with the strategic buyer Finmeccanica to buy Fiat Avio in a roughly E1.5 billion deal.