CD&R commits $600m to distribution carve-out

Clayton, Dubilier & Rice has agreed to acquire VWR International, a distributor of laboratory supplies, from pharmaceuticals group Merck in a $1.65bn leveraged carve-out.

New York-headquartered buyout house Clayton, Dubilier & Rice (CD&R) has agreed to acquire VWR International, a global distribution platform of laboratory supplies, from German pharmaceuticals group Merck for $1.65 billion (€1.29 billion).

Joe Rice, CD&R’s co-founder and chairman, said in an interview that the firm would commit $600m from its Fund VI, a $3.5 billion vehicle. A syndicate of banks led by Citigroup and Deutsche Bank have been appointed to arrange senior loans and manage a bond offering in due course to build a capital structure comprising one third of equity and two thirds debt, Rice said.


According to a Merck spokesman based at the group’s headquarters in Darmstadt, Germany, CD&R was one of seven parties, including other private equity investors, with an interest in the business.


CD&Rs first held talks with Merck’s CEO Bernhard Scheuble in 2001, who a year later turned his attention to selling VWR to a financial buyer after initial plans for a partial IPO of the division were called off in light of adverse market conditions. 


VWR is based in West Chester, Pennsylvania, and distributes laboratory supplies to the industrial, pharmaceutical, educational and government markets. The company has 5,880 employees worldwide and 2003 revenues of approximately $2.8 billion, of which approximately two thirds originate in North America and the remainder in Europe. According to Joe Rice, CD&R intends to grow the company in both regions.


Rice also said that following the VWR deal, CD&R’s Fund VI would aim to make one or two additional investments, depending on how much equity was required for the next opportunity presenting itself.


In the meantime, Rice confirmed, the firm was working on plans for a new fundraising campaign. “We expect to be back in the market in a year’s time,” he said. “We’re very conscious of the calendar at this point.”


Rice said a formal target for Fund VII has not yet been set, adding the firm would expect to organise a vehicle roughly equal in size to Fund VI.


He also said that over the course of the past twelve months, Funds V and VI had returned nearly $2 billion to limited partners, including the $1 billion profit from the $2.4 billion sale of Kinko’s to FedEx in late 2003.


The firm also benefited from recent liquidity events at portfolio companies Jafra Cosmetics and Sirva, the logistics business it took public in November.


Last week Jafra, which underwent a $170 million recapitalisation last year, filed an S-1 registration statement for an IPO. CD&R’s Fund V owns 84 per cent of Jafra’s common stock.


Rice said in the interview that overall both Fund V and VI were on course to return two times capital to limited partners.