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A leading private equity and alternative asset manager, The Blackstone Group, which is led by co-founder, Chairman and CEO Steven Schwarzman, today announced it has agreed to buy all of the equity interests in Pinafore Holdings B.V., the parent company of the Gates Corporation (“Gates”) on behalf of funds which it manages.
The sellers are Gerry Schwartz’s Onex Corporation of Toronto and the Canada Pension Plan Investment Board (CPPIB). Pinafore Holdings is a Dutch holding company, set up for cross border tax reasons at the time Onex purchased Gates in 2010 – when it went by the name Tomkins Plc.
The acquisition is what is known in the M&A business as a “secondary transaction”, whereby one private equity group makes an acquisition from another one, with the seller either wishing to release liquidity for independent portfolio reasons, or has reached its original goals or even has, sometimes, been disappointed by its accomplishment while holding the asset.
Blackstone are now paying approximately US$5.4 billion to acquire Gates, subject to certain normal and customary adjustments, on an enterprise valuation basis.
Based in Denver, Colorado Gates itself is a leading global manufacturer of power transmission belts, fluid power products and other highly engineered and components, used in diverse industrial and automotive applications.
Founded originally in 1911 Gates’ highly engineered OEM and replacement products are frequently mission critical components, where the cost of failure can be very high relative to the cost of the product.
The purchase by Onex and the CPPIB is a good example of Onex founder and CEO Gerry Schwartz’s long running rust belt strategy, buying manufacturing companies that are either underperforming, or undervalued, or both and then turning them around. Gates today is a global company with over 15, 000 employees worldwide.
When Onex and CPPIB acquired Tomkins, as it was then called, in 2010, which they did on a 50-50 basis, they did so as a leveraged buy-out paying £2.9 billion for it (today about US$4.8 billion). Depending on how much equity they put into it then, and what they have sucked out in ordinary and special dividends, and assets sales or spin-offs since, they may now have made a very decent profit.
Certainly their acquisition timing at least was good as the world industrial economy was on the ropes when they bought in, and has since been slowly recovering. In 2013 revenues were US$3 billion and net income was earned of US$136 million, according to the financial statements it still files publicly as there are debt securities outstanding.
To help organize today’s deal Blackstone relied on Morgan Stanley, Barclays, XMS Capital and Deutsche Bank as their financial advisors.
To pay for it Blackstone is also said to be now putting up about US$1.6 billion of its own, and other investment partners’, equity into the deal. Then, Blackstone has also secured additional committed debt financing to be either arranged, or provided, by Credit Suisse, Citibank, Goldman Sachs, Morgan Stanley, Deutsche Bank and UBS.
About Blackstone Group
Blackstone was founded by Stephen A. Schwarzman and Peter G. Peterson, who had been colleagues at Lehman Brothers. In 1985 Schwarzman and Peterson left Lehman, going into partnership to form the Blackstone Company which initially focused on brokering large-scale mergers and acquisitions, before moving into property ownership and investment management.
Today Blackstone is one of the world’s leading private equity investment and advisory firms. Blackstone’s alternative asset management businesses include the management of corporate private equity funds, real estate funds, hedge fund solutions, credit-oriented funds and closed-end mutual funds.
Blackstone also provides various financial advisory services, including financial and strategic advisory, restructuring and reorganization advisory and fund placement services. Through its different investment businesses, as of December 31st, 2013, Blackstone had assets under management of approximately US$265 billion.
About Onex and Gerald Schwartz
Alternative asset manager Onex Corporation of Toronto, today has over US$19 billion of assets under management and is listed on the Toronto Stock Exchange with a market capitalization of over US$6 billion.
Onex was founded in 1984 by its current CEO, Gerry Schwartz, who today is 72, and he has always used basic, but effective, principles of value creation and entrepreneurial management to progress its activities. He has been actively involved in most of Onex’s major acquisitions, growth strategies and value realizations.
Before establishing Onex in 1984, Gerald Schwartz was the co-founder and President of CanWest Capital. Before that he worked at a major Wall Street investment banking firm, Bear Stearns, where he specialized in mergers and acquisitions. His previous business experience also includes a stint practicing corporate law in Canada.
Schwartz was born in Winnipeg, in 1941, and today still owns 19% of publicly traded Onex. Forbes Magazine lists him as worth US$1.8 billion currently, on their regulation Billionaires List.
Gerry Schwartz is married to Heather Resiman, who is the founder and CEO of Indigo Books and Music. The couple have four children, from previous marriages.
The Schwartzs are strong supporters of Israel, including establishing the Heseg Foundation to establish scholarships for IDF lone soldiers in Israel. The Foundation offers scholarships to successful applicants in order to pursue academic programmes after concluding their army service.