Deal in Focus: Astorg to buy Kerneos for €600m

Kerneos will spin out of Materis, a producer of chemicals and materials used in the construction and industrial sectors owned by Wendel. The investment company bought the business from LBO France for €2bn in 2006 and currently holds a 75% stake.

The spinout is expected to be finalised in the first half of 2014, as the process involves consulting the relevant work councils and is subject to regulatory approval.

Astorg had initially looked at Kerneos two years ago and took part in an auction process at the time. It was the only bidder to submit a firm offer around June 2012, but Wendel deemed the proposed valuation too far off its expectations. Astorg decided not to up the ante given the low visibility on current trading and unfavourable debt market trends at the time.

Fast-forward a year, and the stars aligned. "We had a much better visibility on trading prospects in the context of an overall improvement in macro-economic conditions. This is obviously linked, but the debt markets being more generous also allowed us to consider better leverage options. Last but not least, we had been able to follow the company and keep in touch with management for the past two years, giving us much more comfort" says Astorg managing partner Thierry Timsit.

The GP approached Wendel again on an off-market, confidential basis and was able to strike a deal priced slightly above the 2012 offer – money well spent given the company's progress in the interval, says Timsit. Goldman Sachs committed to an interim financing facility, with the aim of tapping into the bond markets in Q1 next year.

Based in Paris, Kerneos specialises in calcium aluminates used in building materials chemistry and refractory applications. Its additives can be used to strengthen construction materials, speed up cement drying, and line components used in the industrial sector – such as furnaces – to make them more resistant to heat and abrasion.

The company employs 1,200 staff across 10 production sites in France, the UK, the US, China, Brazil and South Africa. Kerneos posted a €370m turnover for 2013 and sells its products in more than 100 countries.

"The company benefits from both an advanced technical know-how and a strong market share in a variety of international markets," adds Timsit. "One of the additional value-creation drivers for us will be to try and develop new products addressing new sectors: we see good potential in the waste water, mining and oil & gas industries, for example."

The deal follows Astorg's unsuccessful attempt to take over Canberra, Areva's US-based nuclear measurement subsidiary, at the beginning of the year. The GP raised €1.05bn for its fifth fund in 2011 after a speedy fundraise and the vehicle had only been put to work on a single transaction - the acquisition of Microconnections from French connectors manufacturer FCI in Q3 2011 - prior to the Kerneos deal.

"We had five opportunities to seal deals in 2012 but we ultimately stepped away given the lack of visibility," explains Timsit before adding that none of these transactions eventually crossed the finish line with other buyers. "Like other players, we are now feeling a growing sense of confidence in the market: most European economies may not experience tremendous growth in the coming months, but things are moving in the right direction. We intend to make the most of these opportunities and safely complete the deployment of our fifth fund over the next 24 months."

People
Astorg Partners – Thierry Timsit, Stéphane Epin, Edouard Guigou, Thomas Carbonel, Benjamin Cordonnier
Wendel – Frédéric Lemoine

Advisers
Equity – Goldman Sachs, Céline Méchain (M&A); Montrose, Jean-Jacques de Balasy (M&A); HSBC, Gilles Collombin (M&A); Messier, Maris et Associés, Erik Maris (M&A); Bain & Cie, Jérôme Brunet, Jean-Marc Leroux (Commercial due diligence); 8 Advisory, Stéphane Vanbergue, Gennat Mouline, Alba Ferracci, Julien Graziani (Financial due diligence); Landwell, Bernard Borrely, Fabien Radisic, Nicolas Granier (Legal); Gras Savoye (Insurance due diligence); URS (Environmental due diligence); King & Wood/SJ Berwin, Christophe Digoy, William Robert, Fanny Combourieu, Gwenael Kropfinger, Marc Levy (Legal); Darrois Brochier, Martin Lebeuf (Legal); Kirkland & Ellis, Ward McKimm, Neel Sachdev (Legal).
Debt – Latham & Watkins, Jay Sadanandan, Jocelyn Seitzman (Legal).

This deal was originally covered on 05 December 2013.

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