Carlyle beats rivals to snap up Total’s Atotech

The global buyout house used capital from both its Europe and its US fund to acquire the chemicals business for $3.2bn.

The Carlyle Group has fought off rival bidders to acquire French energy company Total’s Germany-headquartered chemical business Atotech in a $3.2 billion deal, according to a statement from the firm.

It is understood that among those competing for the transaction were fellow international buyout houses CVC Capital Partners, and a consortium of BC Partners and Cinven, as well as a number of strategic buyers.

“There were many people looking at it, because it was widely anticipated. It was one of the very, very few primary deals in the German market this year, and it was quite sizeable,” managing director and co-head of Carlyle Europe Partners Gregor Boehm told Private Equity International, adding that Carlyle had been tracking the business for at least three years.

“The issue was that there were some shying away because of the very tight timeline which Total imposed on all of us, and they couldn’t really match the timeline, which we could do given our experience in the sector and our global team looking at this transaction.”

The sale is part of Total’s portfolio management strategy, which “aims to align the Group’s asset base with its business ambition”, and is part of a move to divest $10 billion-worth of assets by the end of 2017, Total chairman and CEO Patrick Pouyanné said in the statement.

The transaction values the company at 11.9 times 2015 adjusted EBITDA. Carlyle is acquiring the business using capital from the 2014-vintage, €3.75 billion Carlyle Europe Partners IV, and from the 2013-vintage, $13 billion Carlyle Partners VI, a US buyout fund.

“We need to decide what the proportions are going to be,” Boehm told PEI of the proportion of equity that would come from each fund.

“It’s a matter of size as it’s a large equity cheque above $1 billion, so from that perspective it’s too big to swallow for most solo funds. That was the reason why we are jointly investing with our US fund – we’ve a solid track record of doing so on a number of previous deals such as Axalta.”

Boehm said the US and European teams will work with Atotech together during the investment period, as they have done on previous transactions, such as auto-paint company Axalta Coating Systems. 

That deal ultimately reaped Carlyle a profit of $4.5 billion, the firm's second-highest profit in its history, according to media reports.

The funds could also offer a portion of the transaction to investors for co-investment, but that a decision had yet to be made on that.

“We could underwrite it, but we haven’t decided yet.”

Atotech is the 12th deal in Europe IV, taking the fund to around 55 percent invested. For the first 11 transactions the firm paid, on average, eight times EBITDA. The vehicle is expected to invest in around 20 companies in total, and could make another investment before the end of the year.

The Europe fund’s predecessor, Carlyle Europe Partners III, a 2007-vintage, €5.4 billion fund, was delivering a multiple of 2.2x and a net internal rate of return of 14 percent as at 30 June 2016, according to a filing with the US Securities and Exchange Commission. Realised and partially-realised investments in the fund had delivered a 2.6x return and an IRR of 22 percent.

“I’m not negative on the outlook for the market, but you’ve got to be careful in terms of valuations and pricing,” Boehm said of the investment environment in Europe, in which Carlyle invests in five key markets: the UK, Germany, France, Italy and Spain.

“If we don’t find deals which I consider appropriately priced, we don’t do them. We lost out on a number of other deals in the last 12 months because of price.”

At the larger end of the market, it is difficult to find good primary assets, Boehm said.

“They’re expensive,” he said. “Here we felt comfortable because more than 50 percent of the business is really in Asia, and there are a couple of things that impacted the multiple which shouldn’t apply for an IPO or a corporate buy. Lower multiples are not in the frame across many sectors right now.”

Carlyle’s main investment thesis for Atotech is to “keep on doing what they have been doing”, driving growth in the US, which has been a weaker market for the business, and continuing to grow in Asia. There is also the potential to bolt on smaller businesses.

“It’s a very well-invested business, we don’t want to change that, but having a little bit more discipline on cost and ideas wouldn’t be unhelpful and we will focus on increasing R+D across the group also.”

Assessing the five European markets in which Carlyle invests, Boehm said Germany is “continuously underperforming on its potential and volume of new deals”, while the UK has been “very quiet” for the first nine months of this year, but he believes it will pick up. France has also been relatively slow this year.

“The best markets for us have really been Italy and Spain. If you look at Italy, it’s a market where we do probably some smaller deals and medium-sized deals, and many of the big firms have retrenched, unlike Carlyle,” Boehm said.

“In Spain it’s a similar thing, we just closed on [roofing slate manufacturer] Cupa last week. It’s a proprietary deal, we invested just over €170 million equity, so it’s pretty much in our fund’s sweet spot.”