* Lixil, DBJ to form 50-50 JV to buy 87.5 pct of Grohe
* Deal values Grohe at 3.06 bln euros including debt
* Largest Japan M&A deal in Germany ever - Grohe
* Overseas M&A dampened by weak yen but many firms active
By Nathan Layne and Christiaan Hetzner
TOKYO/FRANKFURT, Sept 26 Germany's biggest
bathroom fittings company, Grohe, has been snapped up by
Japanese building products group Lixil in a $4 billion
deal including debt, the largest ever investment by a Japanese
company in Europe's biggest economy.
Lixil's leveraged buyout of Grohe from financial investor
TPG Capital and Credit Suisse's private
equity arm highlights renewed appetite among Japanese companies
for foreign acquisitions following a slowdown in the pace of
dealmaking blamed on a weak yen.
Lixil Group Corp has formed a 50-50 joint venture with the
state-backed Development Bank of Japan (DBJ) to buy 87.5 percent
of Grohe, creating a global group with more than 4
billion euros in annual sales. The deal is expected to close in
the first quarter of 2014.
Grohe will give Lixil the footprint in Europe it was seeking
and help it expand in China through Joyou, a Grohe
bathroom fittings unit that sells through 4,000 distributors in
Asia's largest economy.
Lixil Chief Executive Yoshiaki Fujimori said the acquisition
would fill out a global network built on its 575-million-euro
deal for Italian curtain walling maker Permasteelisa in 2011 and
its $542 million purchase of U.S. toilet and fixtures maker
American Standard earlier this year.
"With this deal we have secured a global platform," said
Fujimori, a former General Electric executive who has put
Lixil on a path to growth through acquisitions since taking the
helm two years ago.
Grohe's private equity owners, who purchased the German
maker of high-end bathroom and kitchen fixtures for 1.5 billion
euros in 2004, had also been considering a stock market listing
alongside efforts to sell the company.
Lixil, formed by mergers of several Japanese building
product makers with a product line-up ranging from high-tech
toilets to window frames, said the deal valued all of Grohe at
3.06 billion euros, or 10.3 times its 2013 earnings before
interest, taxes, depreciation and amortization.
That compares to Swiss rival Geberit, which is
trading at 15.5 times EBITDA, according to Thomson Reuters data.
On a broader comparison, the multiple of enterprise value to
2013 EBITDA for global medium-sized to large construction
material companies was 8.8 times, based on StarMine data.
LIXIL AIMS TO DOUBLE REVENUES
Lixil said it set up a special purpose vehicle to handle the
transaction, limiting the strain on its balance sheet. The deal
will cost it and its partners 2.9 billion euros and includes
1.24 billion euros of non-recourse loans - secured by pledge of
collateral - from Japanese banks.
Fujimori said Lixil had no plans to issue new shares to fund
the transaction and would look to buy the DBJ's stake in the
venture in three to five years after boosting the group's
The deal is aimed at advancing Lixil's goal of roughly
doubling its operating profit margin and revenues to 8 percent
and 3 trillion yen, respectively, over the medium term. It wants
to lift overseas sales five-fold to 1 trillion yen.
Grohe said the transaction was the largest ever investment
made by a Japanese company in Germany. It also ranks as the
second-largest overseas acquisition by a Japanese firm in 2013
behind the nearly $6 billion purchase of Thailand's Bank of
Ayudhya PCL by Mitsubishi UFJ Financial Group.
Japanese firms have spent $27 billion in buying foreign
companies so far in 2013, compared to a record $83 billion for
all of 2012, with some bankers and executives attributing the
slowdown to the reversal in yen strength. The Japanese currency
was trading around 98 to the dollar on Thursday, compared
with around 76 yen in November last year.
Suntory Beverage & Food Ltd, Japan's second-largest
drinks maker, just agreed to buy GlaxoSmithKline Plc's
Lucozade and Ribena brands for 1.35 billion pounds.
Fujimori said Lixil would take a break from overseas
acquisitions and focus on integrating the firms it has already
purchased. But he left open the possibility of deals in Japan.
"There is room left to do something domestically," he told a
news conference in Tokyo.
Shares in Lixil jumped 3.9 percent on Thursday, compared
with a 0.7 percent rise in the broader Tokyo market.
David Haines, a 53-year-old Briton who has been Grohe's
chief executive since 2004, told a separate briefing that he had
just received a new five-year contract to stay at the helm.
Joyou's founders will retain a 12.5 percent stake in Grohe.
Lixil was advised on the Grohe acquisition by BNP Paribas,
Moelis & Company and SMBC Nikko Securities. Grohe was advised by
Credit Suisse and Goldman Sachs.