Unitas, CCMP set for 3.5x return as Atlas Copco buys Edwards for $1.6b

Atlas, a supplier of drilling equipment and air compressors to the mining and construction industries, has agreed to pay up to $10.50 per share for all outstanding shares. The offer comprises a fixed cash payment of $9.25 plus an additional $1.25 per share post-closing, conditional on Edwards meeting certain 2013 revenue and earnings targets. It represents an up to 26% premium on the NASDAQ-listed company's previous closing price.

The transaction is expected to close in the first quarter of 2014. Unitas and CCMP, which between them own approximately 84% of Edwards, have already agreed to back the merger.

"Edwards is a technology leader with a well-developed structure and solid customer relationships in industries we know well. It is a great fit for Atlas Copco," said Ronnie Leten, president and CEO at Atlas, in a statement. "The vacuum solutions market is growing and has similar characteristics to our existing industrial businesses."

Edwards will become the vacuum solutions division within Atlas' compressor technique business area and continue to be headquartered in the UK.

The company produces sophisticated vacuum products and abatement systems, as well as related value-added services. Its products are used to manufacture semiconductors, flat panel displays, LEDs and solar cells, as well as by the power, glass, steel, pharmaceutical and chemicals industries. Edwards has more than 3,200 full-time employees and 500 temporary workers in 30 countries.

Unitas - then known as CCMP Capital Asia - and CCMP Capital agreed to buy Edwards from The Linde Group in March 2007 for an enterprise valuation of EUR685 million (then $902 million), with an additional EUR65 million due if the PE firms successfully developed and exited the business.

The equity commitment from each party was around $150 million. They completed a dividend recap before Edwards went public in May 2012, raising $100 million. The offering comprised entirely new shares, diluting Unitas and CCMP to 42.16% apiece. A previous attempt at a UK IPO in 2011 was abandoned due to market volatility.

Commenting at the time of the original investment, John Lewis, CEO of Unitas and a non-executive director of Edwards, said the goal was to bring the company closer to its fast-growing Asian customer base, notably leading semiconductor and equipment manufacturers in China, South Korea, Japan and Singapore.

During the PE firms' ownership period, EBITDA margins have increased from 14% to 22%, according to a source familiar with the situation. Edwards posted revenue of $595.3 million in 2012, up from $509.8 million in 2008, the most recent year for which the company made disclosures. Net income was $39.1 million, compared to a loss of $16.9 million in 2008.

More than half of the company's revenue came from Asia, with South Korea alone accounting for 18%, a larger share than Europe. Edwards' principal manufacturing facilities are in South Korea and the Czech Republic, and earlier this year the company broke ground on a new facility in Qingdao, China.

Unitas and CCMP's exit multiple will be between 3.1x and 3.5x, depending on whether Edwards meets the financial targets outlined in the transaction. Revenue for 2013 must fall within the range of GPB587.5-650 million ($919 million to $1.02 billion), while EBITDA reaches GBP113.9-145 million.

Unitas is an Asia-focused buyout firm but around half its deal flow is made up of companies that are not based in Asia but have aspirations to grow in the region. The classic target is a leading middle-market industrial company with up to $1 billion in sales and a differentiated product offering, yet lacking the full suite of capabilities to be successful globally and in Asia.

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