Vetco Gray Makes Green For Buyout Trio

Target: Vetco Gray

Purchase Price: $1.9 billion

Sponsor: GE’s oil and gas division

Sellers: CCMP Capital Advisors; Candover Investments; 3i Group

Return On Investment: 3.5x

Industry Sector: Energy

An international trio of buyout firms, including New York-based CCMP Capital Advisors (f.k.a. JPMorgan Partners) has sold off its interest in Vetco Gray, a supplier of production equipment for onshore and offshore oil and gas fields, to General Electric Co.’s oil and gas division for €1.5 billion ($1.9 billion). London firms Candover Investments and 3i Group were the other sellers.

Vetco Gray had been a division of Vetco International, which was acquired by the three firms for $925 million in July 2004. Vetco Gray was expected to generate more than $1.6 billion of sales in 2006; it employs 5,000 people in more than 30 countries. The consortium will retain ownership of Vetco Aibel, a second division of Vetco International, which provides upstream oil and gas production facilities and processing systems. That business will be renamed Aibel.

The sale of Vetco Gray will earn the trio earned approximately 3.5x their total invested capital in Vetco International, according to a source close to the transaction. It’s an especially gratifying outcome for the consortium given the challenging, two-year long carveout process of Vetco International from its former parent company, the Swiss-based engineering conglomerate ABB Ltd. Beginning in mid-2002, the three firms were bogged down in tireless negotiations and an ever-unfolding diligence process that ultimately involved the Securities and Exchange Commission, the U.S. Department of Justice, and a guilty plea on behalf of the seller.

The deal for Vetco International was originally sourced by Candover Investments, which, in order to add clout in a prolonged auction full of strategic buyers, invited 3i Group and JPMorgan Partners in on the deal. The trouble began in late 2003, when ABB disclosed to the DOJ and the SEC knowledge of suspicious payments to government officials made by two of the divisions being sold. At the time the allegations came to light, the buyout trio was in pole position for the assets and had already invested more than a year’s worth of diligence and term negotiations into the deal.

Investigators—including a team of forensic accountants led by JPMorgan Partners— looked into claims that Houston-based Vetco Gray and it’s U.K. subsidiary had made illegal payments to officials in Nigeria, Angola, and Kazakhstan to secure contracts and proprietary information—a violation of the anti-bribery provisions of the Foreign Corrupt Practices Act of 1997. According to the DOJ and the SEC, more than $1.1 million was doled out to officials of the three countries between 1998 and 2003.

“During the period in which the payments were made, ABB obtained or retained business in Nigeria, Angola and Kazakhstan that generated profits totaling at least $5.5 million,” according to a complaint made by the SEC. On July 6, 2004, ABB pled guilty to the charges leveled against it and was ordered by regulators to pay, through its accused subsidiaries, $10.5 million in criminal fines and $5.9 million in disgorgement of illegally-earned profits and their accrued interest. The carveout deal closed six days later.

A source told Buyouts shortly after the transaction closed that the deal’s $925 million price tag (6.7x pro forma 2003 EBITDA of $137.2 million) in 2004 represented a 10% discount off ABB’s original asking price of more than $1 billion.

Calls placed to CCMP Capital Advisors, Candover Investments and 3i Group Were not returned by press time. —A.N.