Carlyle agrees E1.6bn Fiat Avio deal

The US private equity firm has entered into a five-week period of exclusivity with Fiat, beating off competition from Doughty Hanson.

(PrivateEquityCentral.net) US private equity firm The Carlyle Group has signed a letter of intent to acquire Fiat Avio, the aircraft engine-manufacturing unit of troubled Italian industrial giant FiatThe deal covers all of Fiat Avio’s aerospace and aeronautical activities – including airplane, rocket and satellite engines – and is valued at E1.6bn.

Carlyle partnered with Italian defence company Finmeccanica in order to seal the deal. Italian press reports said Finmeccanica would acquire 30 per cent of FiatAvio under the deal outlined in the preliminary talks.

Carlyle had previously been negotiating alone for FiatAvio, but Italian government concern that the company remains in Italian hands forced the firm to seek a local partner. The Carlyle/Finmeccanica offer reportedly beat out other bids from UK-based private equity firm Doughty Hanson, and Italian company Piaggio Aero Industries.

 

Finmeccanica was originally considering a joint bid with French aerospace group Snecma, but that consortium fell to pieces over differences in opinion over the financial and industrial value of an investment in FiatAvio.

 

FiatAvio has 14 plants, nine research centers and approximately 5,000 employees. The company recorded a turnover of E1.5bn in 2002, with an operating profit of E210m.

 

Fiat, struggling with balance sheet problems, last year launched a program of asset sales that has offered a number of attractive opportunities for buyout players. Carlyle said that exclusive due diligence will last approximately five weeks.

 

In December, a consortium of French buyers, including Eurazeo, Pragma-Capital, and UI, entered into exclusive negotiations to acquire Fiat’s truck-rental company Fraikin from subsidiary Iveco.

 

In August, Questor Management teamed with JP Morgan Partners to acquire Fiat’s Teksid Aluminium division, a manufacturer of aluminium automotive components such as cylinder heads, transmission casings and engine blocks.

 

The Italian market is undeveloped relative to some others in Europe, such as France and Germany, but some major acquisitions recently indicate investors are paying attention to the market.

 

Last month, New York-based distressed investment specialist Cerberus Capital Management recently acquired Fila Holding, an Italian manufacturer of footwear and apparel for sport and leisurewear as an add-on acquisition to portfolio company Sport Brands International in a $351m transaction.

 

In October, UK firm Permira reacquired Ferretti, an Italian luxury motor yacht group it bought in 1998 then took public in 2000, in a E633m deal. In July, UK firm Bridgepoint Capital acquired the Caffaro chemicals business of Italian company SNIA in a E120m deal.