Just four years ago, Formica was mired in bankruptcy. Interestingly enough, this was one of the attractions for private equity firms Cerberus Capital Management LP and Oaktree Capital Management LLC, which were able to get a strong brand for a bargain price of $175 million. Now, they are selling out to Fletcher Building, an Australian building materials manufacturer, for $700 million. To get the deal done, Fletcher will tap the frothy debt markets as well as do an equity offering.
While private equity firms get criticized a lot, the Formica deal is certainly a case study for showing how they can be extremely helpful in rejuvenating companies. There was quite a bit of restructuring and a focus on low-cost manufacturing areas, such as China.
The deal comes to about 7 times EBITDA, which is a pretty good valuation for Cerberus and Oaktree.
Fletcher trades in the Australian equity markets and the deal was announced after the close of trading.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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