NEW YORK (Reuters) - Carlyle Group LP (CG.O) said it has agreed to buy Illinois Tool Works Inc’s (ITW.N) industrial packaging unit for $3.2 billion, the private equity firm’s latest acquisition of a large unit being carved out of conglomerates.
The sale puts the Glenview, Illinois-based company well on its way to meeting its stated goal of divesting a quarter of its businesses in terms of revenue. Over the next few years, this will allow the company to focus on higher-margin businesses.
Carlyle, which has a long track record of acquiring non-core businesses from companies and turning them around, prevailed over a rival bidder -- the consortium of Onex Corp OCX.TO and Canada Pension Plan Investment Board (CPPIB) -- in the final stretch of the auction, Reuters reported earlier on Thursday.
While Illinois Tool Works did not formally grant exclusivity to any of the bidders, it focused on negotiating final deal terms with Carlyle in the last two days, according to people familiar with the matter.
Carlyle said it has secured committed debt financing from JPMorgan Chase & Co (JPM.N), Goldman Sachs Group (GS.N), Bank of America Merrill Lynch (BAC.N), Barclays (BARC.L), Citigroup (C.N) and Credit Suisse Group CSGN.VX.
Illinois Tool Works announced in September it was initiating a process to sell the industrial packaging unit, as the conglomerate continues to streamline its diversified business lines.
The packaging business makes steel, plastic and paper products used for bundling, shipping and protecting transported goods, with brands including Signode, Strapex, Angleboard and Mima.
The deal values the packaging business at around 8.5 times the unit’s estimated 2014 earnings before interest, tax, depreciation and amortization, according to one person familiar with the transaction.
Seeking to avoid frothy auctions for companies as markets rallied, private equity firms have shown a strong appetite for large units being carved out of companies seeking to exit non-core businesses.
Those deals involve the creation of new companies and are complex. Firms with experience in executing corporate carve-outs feel they have an edge in such situations.
Last month, Carlyle said it would acquire a clinical diagnostics unit from Johnson & Johnson (JNJ.N) for $4.15 billion.
This followed Carlyle’s acquisition in February 2013 of DuPont’s performance coatings business for $4.9 billion, and its $3.46 billion acquisition of United Technologies Corp’s (UTX.N) Hamilton Sundstrand industrial unit in 2012, along with buyout firm BC Partners Ltd.
Kirkland & Ellis is legal advisor to Carlyle, while Latham & Watkins advised Illinois Tool Works on the transaction.
Reporting by Greg Roumeliotis and Soyoung Kim in New York; Editing by Stephen Powell and Diane Craft