NEW YORK—Carlisle Companies Inc. has found a buyer for its Carlisle Transportation Products business, snagging $375 million for the unit from a private equity firm.
American Industrial Partners, a middle-market private equity firm specializing in North American-based industrial businesses, has agreed to purchase the Carlisle business, which includes the firm's specialty tire and wheel unit, along with its power transmission belting operations.
In business since 1989, New York-based AIP manages a portfolio of more than $1 billion in committed capital. Its current holdings include Allied Specialty Vehicles and Heil Trailer International Co.
The transaction is subject to customary closing conditions, including regulatory clearances in the countries where CTP has operations, and it is expected to close in the first quarter of 2014, according to Carlisle.
Dino Cusumano, a partner with AIP, said his company is "impressed with the CTP business and excited about the opportunities that exist for this business. We anticipate a very successful partnership."
AIP did not elaborate on why it bought CTP or its plans for the business, which reported 2012 sales of $778 million and $52.4 million in operating income (6.8 percent of sales). The tire and wheel business represents an estimated $375 million to $400 million of that total.
CTP President Kevin Forster, in a statement posted on CTP's website, said the company under AIP will "continue to focus on improving our market position, improving operations and expanding sales to our global customers by leveraging our strong leadership team."
CTP manufactures and distributes bias-ply and radial tires, stamped and roll-formed steel wheels, and tire and wheel assemblies to non-automotive customers, and power transmission belts and related components. It manufactures tires at plants in Clinton and Jackson, Tenn., and Meiyan, China. It will continue to offer products under the Carlisle brand name.
The divestiture separates Carlisle from its historical roots, as the company was founded in 1917 in Carlisle, Pa., as an inner tube producer.
Carlisle had invested significant capital in recent years to restructure the CTP unit, but it still failed to measure up to Carlisle's stated objective of reaching an operating margin of 15 percent.
"The business is not core to Carlisle's growth strategy and not supportive of our long-term operating profit goals and expectations," said David Roberts, Carlisle chairman, president and CEO. "The sale of CTP is a major step in furtherance of Carlisle's initiatives to focus on and invest in higher margin, fast-er growing businesses."
For the quarter ended Sept. 30, CTP reported an 88-percent improvement in pre-tax operating income to $13.9 million on 4.1-percent higher sales of $172 million. Carlisle attributed the unit's earnings improvement to higher sales volume, lower raw materials costs and other cost reductions.
Sales in the outdoor power equipment, power transmission and high-speed trailer segments were up 18, 12 and 5 percent, respectively. Offsetting these gains partially was a drop in sales in the power sports market.
For the first three quarters of the year, CTP reported an operating loss of $58.4 million, but that included a non-cash pretax loss of $100 million that Carlisle re-corded during the second quarter. Revenue for the nine-month period dropped 2.2 percent to $602.9 million.
The $375 million sales price was a bit lower than Ivan Marcuse, an analyst with KeyBanc Capital Markets Inc., originally had projected. He had estimated that CTP would bring about 5.5 times EBITA, or $425 million, while the final price tag represented roughly five times EBITA.
"They were looking to move on and upgrade their overall portfolio to higher-margin businesses," Marcuse said. "This business, while a good business and pro-fitable, is a lower-margin business and not really a core focus for the company any longer. Would they have liked to get more money? Probably. But five times EBITA for a low-profit, somewhat cyclical tire company is probably not that far off the mark."
Carlisle did invest considerable resources in CTP to boost its financial outlook, but the operation remained one that would post mid- to high-single digit profit margins at best, the analyst said. "The unit has definitely benefited from the resources that Carlisle had," Marcuse said. "And Carlisle definitely did try to make this work to get profitability in this business much higher."
AIP has obtained equity and debt financing commitments of $130 million, Carlisle said in an 8K filing with the Securities and Exchange Commission, while SunTrust Bank and SunTrust Robinson Humphrey Inc. have committed to provide debt financing of up to $375 million toward the transaction.
In a conference call with analysts, Roberts said the deal came together quicker than anticipated. Following Carlisle's announcement in July of its intention to sell CTP, Carlisle received a number of inquiries and offers for parts of the business, as well as for CTP.
"After comparing other offers to AIP's $375 million offer, along with their commitment to move quickly, we felt it was in the best interest of our shareholders to sell the business as a whole to AIP," Roberts said.
The sale of CTP, which will be reported as a discontinued operation until the deal is completed, will delay Carlisle's plans to reach $5 billion in annual sales. "We're losing approximately $780 million of sales, and while we'd like to replace CTP's operating earnings with a higher-margin global business, which has a rate of growth greater than GDP, there's nothing on the near-term horizon," he said.
Carlisle's third-quarter net income rose 9.3 percent to $76.6 million, with sales up 6.4 percent to $968.8 million. For the first three quarters, net income dropped 37 percent to $140 million as revenue rose 1.4 percent to $2.82 billion.
Carlisle Construction Materials, its largest unit that includes its rubber roofing business, posted a 4.3 percent increase in earnings before interest and taxes to $83 million for the third quarter, as sales climbed 10.7 percent to $505.7 million.
Bruce Davis, Tire Business, contributed to this report.
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