Tyco International to sell unit to Carlyle for $1.96bn

April 2014 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Early March saw fire safety and security systems manufacturer Tyco International Ltd enter into a definitive agreement with private equity heavyweight the Carlyle Group for the divestiture of Tyco’s South Korean security business.

The deal, announced on 3 March, will see the unit transfer to the Carlyle Group in an all cash transaction valued at approximately $1.93bn. The deal is expected to close in Tyco’s fiscal third quarter of 2014, subject to customary closing conditions including meeting the required regulatory approvals. The Carlyle Group will acquire a 100 percent stake in Tyco Fire & Security Services Korea Co and its subsidiaries DT Caps Co, Capstec Co and ADT Security Co. Once the deal has been completed the transaction will represent the biggest private equity buyout in US dollar value in Korea since 2008.

Tyco had been exploring the possibility of selling its Korean unit for some time before finally deciding to put the company up for sale in 2013. A number of private equity firms eventually registered their interest, with bids being attracted from international firms such as Affinity Equity Partners, Bain Capital, KKR & Co and Carlyle. Domestically, South Korea’s MBK Partners also lodged an unsuccessful bid for the unit. “We are pleased to announce the sale of ADT Korea in a transaction that provides value to our shareholders,” said George Oliver, Tyco’s chief executive officer. “While ADT Korea is healthy and profitable, this transaction represented a unique opportunity to realise the value generated in the business over time and redeploy it to further enhance our portfolio and maximize shareholder value. We continue to execute on our three year strategy which positions us to deliver a 15 percent earnings per share compound annual growth rate in fiscal 2015.”

According to Tyco’s statement the companies within its portfolio provides fire and security protection, products and services to over 3 million customers, with approximately 19 percent of the group’s $10.4bn in revenue for the 2012 fiscal year being derived from the Asia-Pacific region. ADT Korea is the leading provider of security services in the South Korean market servicing a base of around 475,000 customers, made up primarily of small and medium sized businesses, commercial and residential customers. The business, headquartered in Seoul, Korea, employs approximately 7500 employees and has a nationwide network that includes 69 branches.”ADT Korea is a highly stable and profitable business with attractive market positioning, strong brand power and excellent cash flow profile,” said Sanghyun Lee, a managing director on the Carlyle Asia buyout team, in a statement announcing the deal.

In the financial year for 2014, ADT Korea is expected to generate revenue and operating income of around $600m and $125m respectively. The company also anticipates an earnings before interest, taxes, depreciation and amortisation (EBITDA) margin of approximately 30 percent, contributing annual earnings per share (EPS) to Tyco of approximately $0.20. As a result of the sale to Carlyle, Tyco expects that approximately $0.05 of EPS in the second fiscal quarter will now be reflected in discontinued operations.

Equity for the transaction will come from two existing Carlyle funds, namely Carlyle Asia Partners IV and Carlyle Partners V. The deal for ADT Korea represents a continuation of Carlyle’s strong presence in South Korea; indeed, since the firm first established itself in the region in 1999, Carlyle has invested more than $920m of equity across 17 transactions. Carlyle has secured additional committed debt financing from a number of parties in order to help finance the deal. Financing was provided by Korea Exchange Bank, Kookmin Bank, Industrial Bank of Korea, Korea Investment & Securities and UBS AG.

The deal for ADT Korea is the second large private equity transaction in South Korea of 2014 to date. KKR and Affinity Equity Partners sold Oriental Brewery to Anheuser-Busch InBev SA in January for around $5.8bn.

Richard Summerfield