Deal in Focus: Astorg sells Kerneos to Imerys for €880m

After a short holding period of just three years, Astorg has agreed to sell Kerneos to listed industrial mineral processor Imerys for an estimated €880m, representing an 8.8x EBITDA entry multiple.

The agreement comes after several parties from the private equity industry had expressed their interest earlier this year, without meeting Astorg’s expectations for the sale.

Stephane Epin, partner at Astorg, explains: “We received a number of unsolicited bids in H1 2016 from funds that worked on offering us a great deal, which however did not turn out to be satisfactory enough.” Funds that expressed interest for the group notably included Advent International, Cinven and Triton, according to several sources.

“The interested funds did not deliver the offer we expected: we had a certain value in mind for the transaction, and Imerys was agile enough to reach it,” Epin adds. “The buyer was able to realise that the group has a strong innovation capacity and solid growth potential. They saw that we were in advance with our business plan, and very smartly made a swift offer appealing both in terms of value and of strategic ambition for the company.”

We received a number of unsolicited bids in H1 2016 from funds that worked on offering us a great deal, which however did not turn out to be satisfactory enough" - Stephane Epin, Astorg Partners

Based in Paris, Kerneos is a chemicals company focusing on calcium aluminates for the building, chemistry and refractory industries. The company currently employs 1,500 staff across nine production sites in France, the UK, the US, China, Brazil and South Africa, and posted a €415m turnover and €91m EBITDA for 2015.

Astorg’s investment in Kerneos dates back to 2013, when the GP spun the group out from Materis (itself a subsidiary of the Lafarge group), which was subject to financial difficulties at the time. Materis itself had been acquired several times by various private equity backers through leveraged buyout transactions, the last of which was completed in 2015 by Wendel, which rebranded the remaining entity (Materis Paints) as Cromology.

According to unquote”data, the deal value for Astorg’s acquisition amounted to €600m. Wendel then held a 75% stake in Materis, which it had acquired from LBO France for an estimated €2bn. Although Kerneos was the first carve-out within the Materis group, others followed with the acquisition of ParexGroup by CVC Capital Partners in 2014, and that of Chryso by LBO France for an estimated €285m later that year.

Bolt-ons and new ventures
During Astorg’s holding period, Kerneos raised its turnover from €366m to €415m and its EBITDA from €73m to €91m. The GP supported growth by investing around €150m in the company via a combination of greenfield industrial projects, acquisitions, and capital expenditures. While existing manufacturing sites were reinforced, Astorg also launched the construction of a new factory in India, increasing the company’s production capacity.

A key element in Kerneos’s development was its acquisition of Greek group European Bauxite in January 2015, which significantly increased its supply of raw materials. “The company had already built bauxite activity in the region, but the bolt-on increased its size,” Epin says. “The acquisition increased the group’s strategic value in the mineral industry.”

The debt for Astorg’s acquisition – a €350m bond coordinated by Goldman Sachs – will be repaid by Inerys once the current deal is finalised in the summer of 2017.

“As we were planning to remain invested in the group," Epin continues, "we were in the process of refinancing the deal and lowering the debt’s cost, which we discontinued as a result of the current agreement with Imerys.”

In November, Kerneos secured €505m from BNP Paribas and Goldman Sachs to refinance its existing debt and repay a vendor loan used to finance the 2014 buyout, according to various reports. The loan reportedly included a €445m seven-year covenant-lite term-B loan, as well as a €60m six-year revolving credit facility.

According to Epin, knowing that Imerys would preserve Kerneos’s “integrity” was also a determining factor in agreeing to the group’s sale. Astorg did not communicate on returns.

People
Astorg Partners – Thierry Timsit (partner); Stephane Epin (partner).

Advisers
Equity – Morgan Stanley (corporate finance).
Vendor – Lazard, Nicolas Constant, Guillaume Moliniver, François Guichot-Pérère, Jean-Philippe Bescond (corporate finance); Goodwin, Maxence Bloch (legal).

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