Lixil Group Corp. (5938) and Development Bank of Japan agreed to buy bathroom-fixtures maker Grohe Group, valuing the German company at 3.06 billion euros ($4.1 billion).
Lixil Group and Development Bank are purchasing 87.5 percent of the company from TPG Capital and a unit of Credit Suisse Group (CSGN) AG, Grohe said in a statement today. The deal is the second-biggest by a Japanese company this year.
Japanese companies are expanding overseas as the nation’s population shrinks. Lixil Group, which also sells construction materials, bought bathroom-fixture maker American Standard Brands this year, as the group aims to more than double sales at its international unit to 1 trillion yen ($10 billion).
“Lixil will gain a brand name with a high-quality image by buying Grohe,” said Masahiro Mochizuki, an analyst in Tokyo at Credit Suisse. “It’ll help boost overseas sales when the domestic outlook is dim, which is in line with their plan to expand outside Japan. There’ll be an opportunity to cut costs as well.”
The companies said they expect the deal to be completed in the first quarter of 2014. Grohe will remain independent within the Lixil group, and Chief Executive Officer David Haines has signed a new five-year contract to head the unit.
TPG, based in Fort Worth, Texas, and Credit Suisse unit DLJ Merchant Banking Partners LP will garner about a 170 percent gain on the $600 million to $650 million of equity they invested in a 2004 leveraged buyout of Grohe, said a person with knowledge of the matter, who asked not to be identified because the information isn’t public.
Owen Blicksilver, a TPG spokesman at Owen Blicksilver Public Relations, declined to comment on the firm’s profit. Suzanne Fleming, a Credit Suisse spokeswoman, didn’t immediately respond to an e-mail query.
The two bought Grohe for a reported $1.84 billion from BC Partners Ltd. and helped expand the company’s reach into Asia in 2011 when they acquired control of China’s Joyou AG. (JY8) The Chai family, which owns most of the rest of Joyou, will retain a 12.5 percent stake in Grohe.
TPG, the private-equity firm run by David Bonderman and James Coulter, and Credit Suisse’s New York-based unit had been exploring a dual-track sale and listing process since April, people familiar with the preparations said at the time.
Lixil Group agreed last month to pay $542 million for American Standard and has also bought Permasteelisa SpA, which made walls for the Guggenheim Museum and the Sydney Opera House. Under today’s agreement, Grohe will be controlled by a joint venture with equal stakes held by Lixil and Development Bank.
“There were other companies interested in us, but Lixil was the only one to place growth high on the agenda,” Grohe CEO Haines said in a conference call with journalists. “There will be more synergies on a sales level than on a cost level, because we are geographically in completely different regions.”
Today’s deal is the biggest acquisition announced by a Japanese company this year after Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest lender, said in July that it plans to buy Thailand’s Bank of Ayudhya Pcl (BAY) for as much as 560 billion yen.
Lixil Group rose 3.9 percent to 2,099 yen in Tokyo trading today. The company has gained 9.5 percent this year, compared with a 42 percent gain in Japan’s Topix index.
Grohe will give Lixil a “strong” sales channel in Europe, Lixil CEO Yoshiaki Fujimori told reporters in Tokyo. Lixil will halt acquisitions of big foreign companies for now to focus on expanding the businesses it has bought, he said.
Grohe, which is based in Dusseldorf and calls itself Europe’s largest provider of sanitary fittings, had also drawn interest from companies including Swiss competitor Geberit AG (GEBN), the people said.
Lixil Group had 285 billion yen of long-term borrowings outstanding at the end of March, according to data compiled by Bloomberg. The company is rated a fifth-highest A+ by Japan’s Rating & Investment Inc. and had 40 billion yen in bonds outstanding, according to data compiled by Bloomberg.
Grohe, TPG and DLG were advised by Acxit Capital Management, Credit Suisse, Goldman Sachs Group Inc., Weil LLP and Clifford Chance. Lixil was advised by BNP Paribas, Moelis & Co., SMBC Nikko and Linklaters.
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