US-based TPG has outbid its private equity rivals, including The Blackstone Group, for Australia’s largest poultry producer Inghams Enterprises, according to a company statement.
The deal is valued at A$880 million (€693 million; $904 million), according to another source with direct knowledge of the matter. The total amount constitutes a cash contribution of A$850 million and a seller payback loan of A$30 million.
TPG is paying 4.5x EBITDA for Inghams for a 100 percent stake as major shareholder Bob Ingham retires. The 84-year-old Ingham started a bidding process in July for the company his family has run for 100 years, which attracted the attention of many private equity firms and strategic buyers.
“An important part of the decision for me was finding a buyer who would ensure that our customers will continue to receive the highest level of service and our employees would be well looked after. I believe I have found that in TPG,” Ingham said in the statement.
The cash portion of the deal is financed with an A$625 million term loan underwritten by seven domestic and international banks. The equity will come from both TPG Asia V – as that fund’s final investment – and TPG Asia VI.
Depending on when the deal closes (regulatory approvals are expected to take two months), this could potentially be the first deal from TPG Asia VI, which held a first close last year on $1.5 billion and is targeting $4 billion, according to Private Equity International’s Research & Analytics division.
TPG will win full control of the board after the completion of this deal, but is expected to back the existing management and their emphasis on growing sales in Inghams’ three higher-growth areas: value-enhanced chicken, further processed chicken, and free-range chicken products.
Inghams has operations in Australia and in New Zealand, where it competes with Affinity Equity Partners-owned Tegel. Affinity bought out the poultry producer in Feburary 2011 for around NZ$605 million (€342 million; $467 million), PEI reported earlier.
This is TPG’s sixth investment in Australia since the firm entered the country in 2004. It is also one of the first deals in Australia since the global financial crisis where the debt-to-equity ratio is so high – 70 percent debt, 30 percent equity, according to PEI’s source. This could be a signal that the market is returning to a level of leverage more attractive for a private equity firm, he added.
With $72 billion assets under management globally, TPG attracted attention in Australia when its $1.5 billion exit of Myer Holdings was chased by the Australia Tax Office (ATO) for around $678 million in taxes, although the firm says it already paid its Australian taxes. According to reports, the ATO is still seeking the claim.