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Following initial indications of interest last week, it was thought that Terex is a leading suitor for Ingersoll Rand’s Bobcat division, according to three sources familiar with the auction. One source and a business development banker, while saying they too have heard of Terex’s involvement, said the company was facing competition for the Bobcat unit and was unlikely to overpay for the asset.
Terex said it would not comment on market speculation or rumor.
A 7.5x EBITDA staple is being offered for Bobcat, said a source close to the situation, a second source familiar with the process from a financial sponsor role, and a development banker. The first source and two development bankers noted a number of PEs were unwilling to pay the 10x EBITDA being sought for Bobcat and abandoned pursuit. The 2006 EBITDA for Bobcat is USD 305m and USD 69m for the construction business, noted a development banker. A previous analyst report predicted Bobcat could be sold around USD 3bn.
Bobcat’s pool of suitors is composed mainly of strategics in addition to yielding some private equity interest, two sources said. While no bidders were confirmed, one source, a buyside banker, said he had heard Deere, a handful of strategic Asian players, and a European automaker were participants in the auction. Kubuto was named as a likely bidder by a third source familiar with the auction. Volvo purchased Ingersoll’s road development division in February for USD 1.3bn and was noted by the second source, who also added Caterpillar and Komotsu as logical bidders for Bobcat.
One PE consortium remains in the process following indications of interest, according to the development banker. A PE which could have the stomach for the riskier, asset-intensive construction side could be Cerberus, speculated one source, referring to its recent Chrysler purchase. An industry banker agreed that unless Cerberus picked up Ingersoll construction assets, he did not foresee any other PE players which contrasted to the third source’s beliefs that PE would be interested in the more volatile assets. One of the sources said he had heard TPG was actively involved in the Bobcat process as well.
Final bids are likely to come in the end of July as management presentations continue through next week, one source. Another source stressed that Ingersoll was not pushing hard deadlines on the bidders.
In mid-May, Ingersoll announced plans to explore strategic alternatives for Bobcat, Utility Equipment and Attachments businesses along with authorization to complete a USD 2-4bn share repurchase. Remaining assets will be classified in three segments: Climate Control Technologies, Industrial Technologies (including Club Car), and Security Technologies. The aforementioned are late-cycle businesses, characteristically more stable than its on-the-block counterpart, one source said.
Before pursuing strategic alternatives for the construction side of the business, Ingersoll advisor Goldman Sachs spoke to large LBO shops in pursuit of a possible entire entity take-out but was rebuffed, both sources said. The financial sponsors contacted were concerned about the residential downturn and its relationship to the construction equipment as EBITDA declined last year to close to 10%, explained the second source.
Two of the sources questioned the use of the construction portion’s sale proceeds; ridding the company of businesses with cyclical residential exposure could be a means of addressing what initially scared PE off, said one source. He said it would be natural for Ingersoll to again test the waters for a full sale.
Staple financing is currently being offered for the whole of Ingersoll Rand in conjunction with the company’s construction division sale, according to one source. Credit Suisse is offering a staple on the remaining assets, said the first source, while the second argued the bank would have no problem fronting the entire amount following its financing role in TXU’s USD 45bn take-private earlier this year.
Due to the ‘hodge-podge’ nature of Ingersoll’s existing portfolio (climate control, security, tools, construction equipment, etc), no strategic could swallow the company whole, said the second source, but he said he thought any PE would want to keep both halves of the company in a potential take-private to counteract late-cycle with highly cyclical businesses.
Blackstone was one of the original PEs looking at Ingersoll, the first source claimed, while the second source agreed, saying it would be well positioned to write an equity check of that caliber. Ingersoll Rand has a current market cap of USD 15.31bn.
However, it remains to be seen whether Ingersoll will have takers for the financing package being offered on the entire entity. The company’s options going forward could include selling the construction businesses for an investor dividend, using the same proceeds for acquisitions, or selling the entire business, likely to a financial buyer, said one of the sources.
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