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CD& R brings to the table substantial experience managing large distribution operations, most relevant being its former ownership of WESCO Distribution. The firm also was in talks last year to buy Hagemeyer.
CD& R and partners Eurazeo and Merrill Lynch Global Private Equity, will pay $50.88 (38.50 euros) per share or a total of about $2.5 billion (1.9 billion euros) for the 73.5 percent stake in Rexel owned by Pinault-Printemps-Redoute SA (PPR). The same price is being offered to minority shareholders, and the partnership will also assume $1.45 billion (1.1 billion euros) in debt.
The deal values Rexel at 6.7 times pretax earnings (EBITDA) based on 2004 estimates and 15 times the distributor's 2003 operating profits. The offer is still below the target set by Rexel when it started shopping the business last year, but high relative to the climate in the U.S. the past few years.
Rexel produces approximately $8.9 billion (6.7 billion euros) in annual revenues from 1,700 locations in 29 countries, and employs about 21,000 people. Approximately 36% of the company's sales are generated in North America ($3.2 billion), 28% in France, 27% in the rest of Europe, and 9% in the rest of the world.
PPR has been looking since last year for buyers for the distributor as the last step in a plan to divest business-to-business assets, reduce debt and focus on its retail holdings, which include 10 luxury-goods brands led by Gucci.
The new owners could enhance Rexel's plans for further growth by acquisition, said Dick Waterman, Rexel executive vice president and chief operating officer, who leads the distributor's North American operations from its U.S. headquarters in Dallas.
The deal's not yet finished, and he hasn't had any "go-to-market" meetings with CD& R, Waterman told MDM, but he believes CD& R's philosophy will support a more aggressive push for growth in a promising market.
"There are a lot of good opportunities for acquisition out there, due to the availability of companies, the improved economy, and the desire of some companies to be acquired," he said.
CD& R, Eurazeo and Merrill's MLGPE have signed an exclusivity agreement with Pinault Printemps Redoute (PPR) to acquire the 73.5 percent of the outstanding Rexel shares they control for an enterprise value of euro 3.7 billion. The investment group has secured commitments from five financial institutions for financing the debt associated with the acquisition. The deal will be funded with a 60/40 debt/equity mix.
CD& R has been busy in the distribution sector lately. The firm recently completed the $1.65 billion acquisition of West Chester, PA-based VWR International, a global distributor of laboratory supplies, from Merck KGaA of Germany. In September the firm also closed the $650 million purchase of Chicago-based Culligan International, a manufacturer and distributor of water treatment products and bottled water, from Veolia Environnement SA of France. CD& R recently successfully exited investments in Kinko's, Jafra and SIRVA, and has returned $4 billion of capital to its limited partners over the last three years.
"Rexel is a very high quality, market leading, global distribution business that shares many of the opportunities to grow and enhance operating performance of our most successful investments ' particularly our very successful experience with WESCO Distribution," said Donald J. Gogel, president and CEO of CD& R. "We believe that Rexel's spread of risk in terms of its fragmented customer base, broad geographic diversity, and global scale are very favorable and fit well with our extensive experience with distribution businesses generally where we have built substantial value.
"With CD& R partner Roberto Quarta as the lead operating partner for the investment, we are confident that our operationally focused investment model can produce both improvements