Brookfield Business Partners LP and its institutional partners will acquire U.S. vehicle parts maker DexKo Global Inc. for US$3.4-billion as part of a strategy to acquire and enhance high-performing businesses in the industrial sector.
The investment announced Monday is the latest addition to Brookfield’s portfolio of industrials, infrastructure and business services. The company says it has US$600-billion in assets under management with US$22-billion invested in the industrials sector.
DexKo, based in Michigan, produces parts for trailers and towable vehicles including axels, chassis, shock absorbers and brakes. The company employs more than 6,000 people across 50 production facilities, according to a release. Formed through the 2015 merger of Dexter and AL-KO Vehicle Technology, DexKo now operates across North America, Europe and Australia.
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Brookfield, a division of Toronto-based Brookfield Asset Management , is acquiring the company from private-equity firm KPS Capital Partners LP.
Cyrus Madon, chief executive officer of Brookfield Business Partners, said the acquisition is consistent with a strategy to buy businesses with excellent margins and strong returns on capital.
He said DexKo is attractive because it is highly integrated, meaning it controls production as well as distribution, and because the company shows opportunities for growth.
“Because of the nature of who they’re selling to, their cash flow is very durable,” Mr. Madon said. “What we found over decades is buying that type of business generates consistently high returns for our investors.”
Typically, Brookfield Business Partners acquires companies, helps them grow and sells them at a profit several years later. The company deployed around US$780-million of capital in the past year, generating US$675-million of proceeds, according to a company report.
Brookfield’s investment will be funded with approximately US$1.1-billion of equity, of which Brookfield Business Partners intends to invest approximately US$400-million. The balance of the equity investment will be funded by institutional partners. Prior to or following closing, a portion of Brookfield Business Partners’ commitment may be syndicated to other institutional investors.
Financing will be led by a syndicate of banks including Credit Suisse, Deutsche Bank, BMO Capital Markets, Bank of America, Goldman Sachs and RBC Capital Markets. Davis Polk & Wardwell LLP is acting as legal adviser to Brookfield.
The deal comes after Brookfield’s announcement on Sunday that it will acquire British-based Modulaire Group for US$5-billion. The company maintains approximately 260,000 modular units, used on construction sites, for schools and as temporary offices, across 25 countries. Mr. Madon called it another excellent opportunity for margin expansion.
Modulaire is backed by private equity firm TDR Capital. Brookfield’s investment will be funded with about US$1.6-billion of equity and the company intends to contribute about US$500-million to the acquisition, with the balance funded by institutional partners, the company said.
Mr. Madon says that while industrials and business services will continue to be the core of the firm’s investments, it is now also focused on exploring investments in the technology and health care industries.
“As we grow, we want to increase the universe of potential businesses we can buy. We’ve made a concerted effort to get into health care and technology, and we now have teams that are solely focused on each industry,” said Mr. Madon. “That’s where we should see a lot of growth for both Brookfield’s private-equity business and for Brookfield Business Partners.”
Mr. Madon said the company also plans to expand its investments geographically in China and Japan.
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