NEW YORK, Sept 25 (Reuters) - H.I.G. Capital has lined up US$710m of loans to help fund its roughly US$1bn leveraged re-purchase of US natural additives producer Vantage Specialty Chemicals, according to two sources familiar with the matter.
The loans will include a US$75m revolving credit facility, a US$465m secured term loan with a first priority claim and a US$170m secured term loan with a second priority claim, the sources said.
The buyout marks the return of Vantage’s ownership to H.I.G., which sold the Illinois-based company to current private equity owner The Jordan Company in 2012.
Morgan Stanley, RBC Capital Markets and Jefferies are providing the debt, according to a September 20 press release. Morgan Stanley will lead syndication, which will launch in October, the sources added.
The financing will bring the company’s leverage to around 6.5 times. That’s above the six times cap that US regulators adopted in their leveraged lending guidelines in 2013, noting that debt amounts above that level raise concerns for most industries.
Morgan Stanley, RBC and Jefferies declined to comment. H.I.G. did not respond to requests for comment.
H.I.G. is paying US$950m for Vantage, translating to an enterprise value multiple of about 10 times the US$97m of annual earnings before interest, taxes, depreciation and amortization, or Ebitda, used to market the company, the sources said. The transaction will be capitalized with around US$315m of equity, including a minority stake that will be rolled over by Jordan.
The valuation is in line with Ashland Global Holding’s recent acqusition of Pharmachem Laboratories.
In May, the US specialty chemicals company bought Pharmachem, a global provider of custom and branded nutritional and nutraceutical ingredients for the food and beverage, flavor, and fragrance industries, for US$660m.
The purchase price represented a multiple of roughly 10.5 times Pharmachem’s estimated 2017 Ebitda, according to company filings.
The growing M&A activity in the space of late comes as consumers increasingly demand transparency on product ingredients in support of healthier and more environmentally-conscious lifestyle choices, and manufacturers seek to cash in on the behavioral shift.
US consumer sales of natural, organic and healthy products are forecasted to grow 64% to US$252bn by 2019 from US$153bn in 2013, according to NEXT Forecast.
Vantage, which serves personal care, food, consumer and industrial end markets, was formed by H.I.G. in 2008 through the acquisition of Croda International’s US oleochemical business and scaled through subsequent roll-ups of Lambent Technologies in 2008 and Lipo Chemicals in 2010.
The company most recently purchased oils, ingredients and custom food processing equipment manufacturer Mallet & Company in 2016. (Reporting by Andrew Berlin; Editing By Michelle Sierra, Lynn Adler)