Blackstone Agrees to Buy Gates Global in $5.4 Billion Buyout

Apr 04, 2014 4:31 pm ET

(Updates with Onex statement in second paragraph.)

April 4 (Bloomberg) -- Blackstone Group LP, the world’s largest buyout firm, agreed to acquire industrial-products maker Gates Global Inc. from Onex Corp. and Canada Pension Plan Investment Board for $5.4 billion.

The transaction is expected to be completed by the end of the year, Toronto-based Onex said in a statement today. Onex and Canada Pension Plan will receive $3.5 billion in proceeds when the deal closes, bringing their total proceeds to $4.7 billion, or 2.2 times their initial investment, according to the statement.

“It was a tough decision to sell Gates,” Seth Mersky, an Onex senior managing director, said in the statement. “We don’t see many industrial businesses with its global brand recognition.”

The acquisition will be New York-based Blackstone’s biggest private-equity deal since taking over Hilton Worldwide Holdings Inc. seven years ago. The firm’s dealmaking has been stagnant as rallying stock markets in 2013 led to high prices that the firm chose to pass on. Its private-equity group deployed $5 billion from its funds last year, the same as in 2012, as New York-based Blackstone kept “getting outbid,” President Tony James said on a January earnings call.

Blackstone is agreeing to pay 9.6 times Gates’s adjusted earnings before interest, taxes, depreciation and amortization for the year ended September. The median multiple for deals over $250 million has ranged from 9 to 11 times each quarter in 2012 and 2013, according to PitchBook Data Inc., a Seattle-based research firm.

Dual Track

Gates, which makes power transmission belts, fluid hoses and other industrial equipment, filed in December for an initial public offering as Onex and Canada Pension Plan pursued a dual- track exit of their investment by exploring an IPO and a sale. Denver-based Gates, led by Chief Executive Officer Jim Nicol, posted sales of about $2.9 billion for the year through September, according to the IPO registration statement filed with U.S. regulators.

Gates was acquired in 1996 by London-based Tomkins Ltd., which was purchased 14 years later for about $4.5 billion by Onex and Canada Pension Plan. Onex took a 56 percent stake and Canada Pension Plan a 42 percent interest.

Gates sells products to customers including Deere & Co., Daimler AG and Bombardier Inc., with North America accounting for half its sales, according to the filing with the U.S. Securities and Exchange Commission.

Private-equity deals globally stand at $164.8 billion this year through yesterday, a 48 percent increase from the same period last year, according to data compiled by Bloomberg.

Blackstone acquired Hilton in 2007 for $26 billion, a transaction completed by the firm’s private-equity and real estate units. The firm’s real estate funds purchased Centro Properties Group’s U.S. shopping centers for $9.4 billion in 2011.