One Equity to sell Progress Rail for 5x return

The JP Morgan Chase-backed private equity arm will sell Progress Rail Services to Caterpillar for $1 billion in cash, stock and assumption of debt after holding it for just over a year.

JP Morgan Chase & Co.’s captive buyout arm One Equity Partners will sell Progress Rail Services, a supplier of remanufactured rail products and railway services, to Caterpillar for $1 billion (€780 million) in cash, stock and assumption of debt. This figure includes approximately $424 million in cash, $376 million in Caterpillar stock, and $200 million of assumed long-term debt.

One Equity would not comment on the transaction, but a source close to the deal said that the firm paid $100 million in cash when it acquired the company in March 2005 from Progress Energy, a North Carolina-based energy company which divested the unit. The source said the sale should result in an approximate 5x multiple.

Based in Albertville, Alabama, Progress Rail offers reconditioned and remanufactured railcar components, rail and track products, railcar and locomotive repair, rail welding, maintenance of way equipment and railcar dismantling. The company had revenue of approximately $1.2 billion in 2005 and employs around $3,700 people. Its customers include all of the major North American railroads, as well as regional railroads, short lines, public transit authorities, private car owners and railcar builders. The company has more than 90 facilities in 29 US states, Canada and Mexico.

One Equity Partners was absorbed in the merger between JP Morgan and Bank One, and is funded entirely by JP Morgan Chase. One Equity currently manages $5 billion of investments and commitments for the bank. The firm has offices in New York, Chicago and Frankfurt, and generally writes equity cheques of between $50 million and $200 million per investment. Past deals for the firm include investments in camera maker Poloroid, pharmaceutical developer Quintiles and German packaging outfit Mauser.

JP Morgan also provided advisory services for the transaction.