Kohlberg, Kravis and Roberts & Co LP market cap (as of 15/03/2013): $13.27 bn

Gardner Denver Inc. market cap (as of 15/03/2013): $ 3.69 bn

Deal Type: LBO 100%

On the 8th of March it has been reported that Gardner Denver and KKR have signed a definitive agreement in which the private equity fund will purchase 100% of the shares of the machinery maker at a price of $ 76 per share, valuing the target company at approximately $ 3.9 bn inclusive of $ 400 mln long term debt, or 8x EV/Ebitda. The transaction will be settled entirely in cash, and the premium is 39% on Gardner’s price prior to rumours of the deal.

Gardner Denver is a company that designs, manufactures and markets engineered industrial machinery and related parts and services of air and gas related products in various industries. Its products range from compressors to pumps and blowers. The company reported revenues of $ 2,370 mln in 2011, and had an operating income of $ 400 mln and net income $ 277 mln.

The whole process had started in July 2012, when activist investor Value Act Capital Management LLC, which at the time held a 5.1% stake in the company, solicited the sale due to uncertainty about its future after the resignation of its former CEO, Mr. Pennypacker. The initial beauty contest was won by SPX Corp., a multi-industry manufacturing firm, which could have benefited from synergies compared to financial bidders. However, the company was not able to support its $ 4.2 bn bid with adequate funds, and therefore talks with financial buyers like TPG and Advent International were resumed, and at the end KKR won.

The deal will be made through KKR’s investment funds, and the target will assume the debt issued for its purchase, making the transaction a Leveraged Buyout. The funds will be obtained in the form of a senior secured credit facility provided by a syndicate of banks that include UBS, Barclays plc, Citigroup Inc., Deutsche Bank, Mizuho Corporate Bank Ltd and KKR Capital Markets LLC. These banks have also arranged a senior unsecured bridge loan to support the deal. The transaction has already been approved by the Board of Directors, and it is expected to be approved by Gardner’s shareholders and regulators by the third quarter of 2013. KKR has negotiated a termination fee that binds Gardner to the payment of $ 103.4 mln in case the deal does not go through.

This transaction comes as yet another LBO following larger deals (i.e. Heinz and Dell) that have taken place during the first quarter of 2013. Private equity funds are increasingly taking advantage of the overabundance of cheap debt in the market to seize opportunities represented by corporations with strong brand name and cash flows to tide over debt repayment itself. Gardner Denver makes for an attractive target as it has a relatively low D&A compared to its competitors as well as a pre-LBO debt level below 1 (in terms of Net Debt/Ebitda): it seems particularly apt to successfully shoulder the leverage that will result after the transaction.

The sell side financial advisor has been Goldman Sachs, whereas Simmons and Company and UBS were the main advisors on the buyer’s side.


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