FRANKFURT, July 12 German industrial group GEA
will target private equity groups in its push to sell
its heat exchanger unit, hoping to fetch a price of more than
1.3 billion euros ($1.7 billion), three people familiar with the
GEA, which is being advised by Deutsche Bank,
will approach investors such as First Reserve, CVC,
Blackstone, Permira, Cinven and
Advent, the sources said, speaking on condition of anonymity.
"I do not see any GEA peer bidding for the unit as a whole,"
one of the people said on Friday.
GEA's heat exchanger business, its second largest by
revenue, offers products ranging from air conditioning systems
to cooling towers but has limited synergies with its other
operations. Last month, GEA said it aims to focus on its highly
stable business with the food industry.
The auction process for the unit dubbed HX is still at an
early stage, with information packages likely to be sent out to
potential bidders in autumn and tentative bids expected several
weeks thereafter, the sources said.
"The sales process is being set up according to plan," a
spokesman for GEA said, while Deutsche Bank and the investors
declined to comment.
"The quality of HX's sub-units is quite diverse," a banker
close to a potential bidder said.
GEA's plate heat exchangers business - mainly used for food
and drink production - will easily attract attention, he said.
Interest will be lower for the heating, ventilation and air
conditioning equipment (HVAC) business, he said, due to its
strong connection to the cyclical construction industry.
"Cooling towers will be a tough sell," he added.
To coax investors into buying the unit as a whole, GEA will
likely have to offer a discount to the valuation of peers and
could sell HX at 6-8 times earnings before interest, tax,
depreciation and amortisation (EBITDA), the sources said.
Sweden-based peer Alfa Laval, which competes with
GEA's unit in the area of plate heat exchangers, trades at 11
times, while U.S.-based SPX, which of late
unsuccessfully tried to divest its own cooling tower unit,
trades at a multiple of 8.9.
Another issue for prospective buyers is that they will have
to line up banks that can fund the debt guarantees that
suppliers of the industry's large machinery generally have to
provide. These are to cover pre-installation performance
guarantees and warranties once the machines have started
Any buyer would probably have to write a large equity cheque
and would not be able to use large amounts of debt to finance
the acquisition to convince banks to supply the guarantees, one
of the sources said.
GEA Heat Exchangers posted revenues of 1.61 billion euros in
2012 and EBITDA of 167 million euros. Its order intake dropped
nearly 12 percent on a like-for-like basis last year.