US private equity firm The Carlyle Group has finalised the terms for one of the largest private equity transactions of 2003, agreeing to pay E1.5bn for the aerospace business of Fiat Avio, the industrial manufacturing subsidiary of the Italian carmaker.
The final price is slightly lower than the E1.6bn figure stated in April, when Carlyle announced that it had entered into exclusive talks with Fiat, the Italian conglomerate.
As expected, Avio Holding, the acquisition vehicle set up to complete the deal, will be 70 per cent-controlled by Carlyle, with Italian engineering group Finmeccanica holding the remaining 30 per cent, according to a Carlyle statement.
The E1.5bn cost of the deal will we partly funded with E500m of equity provided by Carlyle and Finmeccanica. The debt for the acquisition will be provided by Banca Intesa, Citigroup, Goldman Sachs, Lehman Brothers and Mediobanca.
According to a source close to Carlyle, the buyout takes the amount of equity capital the firm has invested in Europe in the last 12 months to over E1bn. Carlyle’s European buyout operation, which is currently raising a new E2bn fund, comprises 36 investment professionals, only two of whom are US citizens.
The Fiat Avio businesses specialise in the design, development and production of components of aeronautical engines, accessory gearboxes, low-pressure turbines, naval and space propulsion systems as well as the maintenance, repair and overhaul activities for military and commercial aircraft engines. FiatAvio has 14 manufacturing plants, nine research centres and over 5,000 employees. In 2002, the company reported sales of more than E1.5bn and an operating profit of E210m.
“We will support the management to develop further Avio’s activities and to find new opportunities for growth,” said Edoardo Lanzavecchia, Milan-based managing director of The Carlyle Group. “This deal confirms our ability to make large acquisitions in Europe and underlines our deep aerospace expertise.”
Aerospace and defence has long been one of Carlyle’s core areas. Prior to this deal, Carlyle was already one of the biggest private equity investors in these industries, having completed 27 transactions worldwide with a combined purchase price of more than $5.8bn.
Last December, the firm acquired a 33 per cent stake in QinetiQ, the UK’s defence research organisation, in a deal that valued that business at £500m.
Banca Intesa, Citigroup (bookrunner), Lehman Brothers (bookrunner) and Mediobanca are acting as mandated lead arrangers of the senior debt. Citigroup, Lehman Brothers and Goldman Sachs are lead underwriting the subordinated debt, while Banca Intesa is acting as underwriter.
Goldman Sachs acted as advisor to The Carlyle Group and Lehman Brothers as co-advisor. Mediobanca was advisor to Finmeccanica.