TOKYO/FRANKFURT Germany's biggest bathroom fittings company, Grohe, has been snapped up by Japanese building products group Lixil (5938.T) 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 TPG.UL and Credit Suisse's CSGN.VX 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 GROH.UL, 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 JY8G.DE, 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 (GE.N) 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 GEBN.VX, 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 profits.
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 (BAY.BK) by Mitsubishi UFJ Financial Group (8306.T).
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 (2587.T), Japan's second-largest drinks maker, just agreed to buy GlaxoSmithKline Plc's (GSK.L) 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 .TOPX.
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.
($1=98.6900 Japanese yen, 0.6224 British pounds, 0.7403 euros)
(Additional reporting by Ludwig Berger and Emi Emoto; Editing by Edmund Klamann, Chris Gallagher and Tom Pfeiffer)