* Honeywell, Lockheed, Rockwell Collins among bidders
* Amadeus, Thales also involved in second-round bidding
* Carlyle hopes to fetch as much as $1.5 bln from Arinc sale
* Private equity seen less likely to meet price expectations
By Soyoung Kim and Greg Roumeliotis
NEW YORK, July 11 Carlyle Group LP is
betting that industrial companies rather than buyout firms are
more likely to meet its target price of up to $1.5 billion for
the aerospace communications firm Arinc Inc, according to four
people familiar with the matter.
Industrial conglomerate Honeywell International Inc
and travel technology company Amadeus IT Holding SA are
weighing offers in the second round of bidding for Arinc, the
sources said, adding to the roster of companies participating in
the auction previously reported by Reuters.
Lockheed Martin Corp, Rockwell Collins Inc
and Thales SA, as well as a handful of private equity
firms, also made it through to the second round, sources
familiar with the matter told Reuters last month.
With fully-financed bids expected at the end of July, Arinc
management is spending more time speaking with the aerospace and
industrial companies and making more information available to
them, rather than the private equity bidders, sources told
Reuters this week.
Carlyle is hoping that industry players seeking to capture
synergies with Arinc and expand their business lines may be
willing to pay more than financial investors that will
capitalize on Arinc only as a standalone investment, the sources
Private equity firms Blackstone Group LP, BC Partners
Ltd, Warburg Pincus LLC, Hellman & Friedman LLC and Advent
International Corp are through to the second round of bidding,
sources told Reuters previously. Onex Corp is another
buyout firm involved in the process, people familiar with the
matter said this week.
The sources asked not to be identified because details of
the auction are confidential. Carlyle and Honeywell declined to
comment, while representatives for Arinc, Amadeus and Onex did
not respond to requests for comment.
Annapolis, Maryland-based Arinc, founded in 1929, designs
systems that help airline pilots communicate with the ground. It
also provides transport communications and systems for the
defense, government, healthcare, networks and security sectors.
Carlyle's strategy of focusing on selling Arinc to industry
players for a higher price tag is not without risk. It could
result in private equity firms trying to lowball the auction
should the strategic bidders decide to walk away.
Carlyle tried to sell Arinc in 2010 but failed to strike a
deal. It did not want to sell cheap to another private equity
firm, and rival aerospace companies expressed little interest in
Arinc as a whole, partly due to concerns over its government
consulting services, sources said at the time.
Many defense companies had long offered services that
included advising government agencies on programs on which the
companies ended up bidding, creating conflicts of interest. That
prompted the U.S. Congress to pass a law requiring the
Department of Defense to tighten rules on potential conflicts.
Arinc addressed this by selling its government consulting
division to Booz Allen Hamilton Holding Corp, another
Carlyle-backed company, for $154 million last year.
Private equity firms buy companies in order to sell them
later at a profit. While they can exit their investments in
other ways - through sales to other buyout firms or initial
public offerings - finding an industry buyer willing to pay top
dollar can be the most lucrative route.
Warburg Pincus, for example, stands to make close to three
times its investment in eyecare company Bausch & Lomb Holdings
Inc after reaching an agreement in May to sell it to Valeant
Pharmaceuticals International for $8.7 billion.
In February, Carlyle co-Chief Executive William Conway
lamented what he described as an absence of "aggressive
acquirers of assets that we own" despite favorable financing
conditions. But he was optimistic that buyers would eventually
"We have been stunned that the strategic players have not
become more aggressive. Now we are beginning to see a little bit
of activity in that regard," Conway said on an investor call.
Carlyle bought Arinc in 2007 from a group of U.S. airlines
for an undisclosed sum. It believes it can fetch between $1.3
billion and $1.5 billion for it, people familiar with the matter