by David Carey | Published July 27, 2012 at 11:29 AM
Ultimately, what gave Carlyle Group and BC Partners Ltd. the edge in the auction of United Technologies Corp.'s pump businesses was a willingness to ante up $3.46 billion for the whole unit.
Only those two firms "bid for the entire thing," said a person involved in the sale. Most other bidders, which included financial sponsors and corporate suitors SPX Corp. and Flowserve Corp., were interested in only the unit's parts, the source said.
In a deal announced late Wednesday, the private equity shops agreed to buy the businesses housed in UTC's Hamilton Sundstrand industrial products unit. The sale delivers a key component in UTC's plan to finance its $16.5 billion acquisition of Goodrich Corp., which U.S. and EU regulators on Thursday cleared with conditions.
Carlyle and BC, according to a source, plan to finance 65% to 70% of the price with debt raised through Citigroup Inc., RBC Capital Markets and other banks.
Carlyle managing director Brian Bernasek and BC partner Mark Fariborz said in a phone interview that though the firms are paying a market-level multiple, the businesses' steady growth, low capital spending requirements, ample free cash flow and high profit margins were potent attractions.
The three main businesses BC and Carlyle are acquiring are industrial air compressor maker Sullair; Sundyne, which produces pumps for refineries and chemical plants; and metering pumps supplier Milton Roy. "There is real value in the combined company. There are so many opportunities for growth in a business of this scale and breadth," Bernasek said.
"We see an opportunity to invest in R&D, product development and sales and marketing to drive higher organic growth," Fariborz said. "This is a great platform" that can be expanded via acquisitions, he added.
For Hartford, Conn.-based UTC, the sale advances plans it made in March to raise at least $3 billion via asset sales to pay for Goodrich, as part of a sweeping portfolio reshuffle prioritizing areas of expected high growth over slower segments. The company earlier this week announced the sale of its Rocketdyne business to GenCorp Inc. for $550 million, and also has its smaller Clipper Windpower division on the block.
The regulatory approval to close the Goodrich deal requires UTC to sell Goodrich's electric power systems business and its pumps and engine controls unit, along with a previously announced planned sale of the target's stake in the Aero Engine Controls joint venture to partner Rolls-Royce Holdings plc.
UTC, maker of products including Carrier HVAC systems, Otis elevators, Pratt & Whitney jet engines and Sikorsky helicopters, said that with the approvals now in hand, it intends to close the Goodrich deal by the end of the week.
UTC chairman and chief executive Louis Chenevert said the Hamilton Sundstrand sale "represents another significant step forward in our ongoing portfolio transformation." The executive said that "while these are strong, profitable companies with solid customers and continued promising outlooks, they are not part of UTC's core of aerospace and building systems."
With the Goodrich deal nearing conclusion, UTC has easily surpassed its target for divestiture proceeds and appears on track to fund the purchase without a hit to its credit rating.
The Hamilton Sundstrand deal represents the second large buyout involving BC in recent weeks, following the $6.6 billion purchase of Suddenlink Communications Inc. by BC and Canada Pension Plan Investment Board, announced July 19.
Carlyle has been on an acquisitions tear. In just the past four days, it agreed to back Genesee & Wyoming Inc.'s $2 billion purchase of RailAmerica Inc. and snapped up Service King Collision Repair Centers for an undisclosed price.
The buyers were advised by Citigroup's Francis Tucci and RBC's Glenn Riedman. Debt financing is being provided by Credit Suisse Group, Deutsche Bank AG, Morgan Stanley and UBS in addition to Citi and RBC.
BC and Carlyle took legal counsel from Latham & Watkins LLP partners Daniel Lennon and Paul Sheridan.
Goldman, Sachs & Co.'s Matthew McClure and David Leach ran the auction for UTC. Wachtell, Lipton, Rosen & Katz's Trevor S. Norwitz, Igor Kirman, David A. Schwartz, Jeremy L. Goldstein, T. Eiko Strange and Joshua M. Holmes were UTC's legal advisers.