CD&R leads year’s largest European LBO

A consortium comprising Clayton Dubilier & Rice, Eurazeo and Merrill Lynch Global Private Equity has signed an exclusive agreement to purchase listed French electrical distributor Rexel for €3.7bn.

In what will be the largest European leveraged buyout of 2004, a trio of private equity investors have teamed up to sign an exclusive agreement to buy the Paris-listed subsidiary of Pinault Printemps Redoute (PPR) for €3.7 billion ($4.9 billion).

New York-headquartered Clayton Dubilier & Rice (CD&R), French independent investment company Eurazeo and the global private equity arm of investment bank Merrill Lynch (MLGPE) will acquire Rexel, a global distributor of electrical equipment.

CD&R will lead the transaction and is poised to commit €603 million of equity in return for a 36.6 percent stake in the business. Eurazeo will take a 35.6 percent stake investing €587 million. MLGPE will put in €458 million for a 27.8 percent interest.

Debt financing for the bid was provided by a consortium of banks including JP Morgan Chase, Morgan Stanley and Royal Bank of Scotland.

The deal is expected to complete in the first half of 2005, following the necessary regulatory approvals. Rexel operates in 29 countries, employing over 21,000 employees. In 2003 the company posted sales of €6.7 billion.

Commenting on the transaction, CD&R chairman Joe Rice said in a statement: “Rexel is a very high quality, market leading, global distribution business that shares many of the opportunities to grow and enhance operating performance of our most successful investments – many of which have been in the distribution space.”

The deal was led for CD&R by operating partner Roberto Quarta and financial partner David Novak, both London-based. The deal is CD&R’s second major transaction in Europe this year following the $1.65 billion acquisition in April of VWR International the global laboratory supplies distributor from pharmaceutical company Merck.

The investment was made from CD&R's sixth, $3.5 million fund, which a source close to the firm said was 'almost fully invested'. CD&R does not undertake deals with other private equity firms very often, preferring to take equity stakes by itself, but the source said that this particular deal had been 'too large' to go it alone.

Since its inception, CD&R has invested over $5 billion of equity in leveraged acquisitions. The firm operates out of offices in its native New York and has built up a London office of ten investment professionals.

Eurazeo is an independent investment company listed on Euronext with a market capitalisation of around €2.5 billion. Last year the firm teamed up with another US private equity firm to fund another French transaction – the €515 million buyout along with The Carlyle Group of tile manufacturer Terreal from parent company Saint Gobain.

As the private equity arm of Merrill Lynch, MLGPE manages investments on behalf of the Merrill Lynch Group and certain employee partnerships. The firm’s most recent transaction was its involvement with the consortium that sold the Premier Lodge hotel chain to Whitbread Group for £536 million (€807 million; $988 million).