DuPont Co. struck a deal to sell its slow-growing car paint business to investment firm Carlyle Group LP for $4.9-billion (U.S.) cash as
it seeks to focus on higher-growth areas such as agriculture and nutrition.
A sale of the performance coatings unit to Carlyle, one of private equity’s top investors in industrial companies, allows DuPont to cut debt and better positions it for acquisitions in priority sectors such as advanced materials and biotechnology.
A private equity firm with expertise in managing costs, Carlyle gets a business that is a leader in the markets it serves and has a stable cash flow that allows it to seize on opportunities in developing economies such as China and Brazil.
“The coatings marketplace has consolidated greatly over the last few years. Our business – to continue to invest and be competitive – with Carlyle will have a better future,” DuPont chief executive Ellen Kullman told analysts on a conference call Thursday.
The sale caps a nearly eight-month auction of the car paint unit, which has 11,000 employees and is expected to generate revenues of more than $4-billion this year. The transaction is expected to close in the first quarter of 2013, subject to regulatory approvals, DuPont said.
It is the 12th private equity deal in 2012 for Carlyle, which leads in the league table of buyouts so far this year, boasting a total transaction volume of $15.3-billion.
DuPont’s performance coatings business primarily sells to auto paint refinishers. Ford Motor Co. and General Motors Co. are also key customers, although selling to so-called original equipment manufacturers is not as lucrative.
DuPont said it will still generate more than $3-billion through sales of advanced materials to the auto industry. As part of the transaction, Carlyle will assume $250-million of DuPont’s unfunded pension liabilities.
“We’re going to look to strengthen that balance sheet and then we will look to execute against our financial principles, which I’ve talked about is around taking any excess cash and providing that back to shareholders unless we have a compelling investment opportunity within the company,” DuPont chief financial officer Nicholas Fanandakis said.
“DuPont continues its strategic pivot to emphasize the opportunities and advanced materials enabled by the integration of biology and chemistry. More M&A in this area appears likely, in our view,” Jefferies analysts wrote in a note to clients.
Carlyle expects the refinish part of the car paint unit, which represents around 75 per cent of its earnings, to generate a consistently strong cash flow as demand for car repairs remains stable despite economic uncertainty.
“As long as people are driving their cars and having them repaired, this is a very consistent and stable business even in tough times of the economy,” said Greg Ledford, head of Carlyle’s industrial and transportation team.
Buyout firms, flush with capital they are looking to put to work and backed by readily available financing for leveraged buyouts, have been snapping up assets being carved out of conglomerates, as well as companies sold by other private equity firms.
Carlyle has been particularly active of late, committing $1-billion in private equity in the second quarter and announcing deals since then for which it will commit at least $1.6-billion, co-chief executive William Conway said on Aug. 8.