Independent capital buy-out firm, CVC Capital Partners Asia, has acquired a majority equity stake in Australia’s largest distributor, Tech Pacific.
In a deal that was on the cards for the last few years, CVC acquired a 58.5 per cent holding in the Tech Pacific Group for an undisclosed amount.
According to Hagemeyer, the total consideration for 100 per cent of the Group’s shares is about $345 million, making the value of CVC’s investment more than $200 million. Tech Pacific’s parent company, Hagemeyer, will keep a 31.5 per cent stake with the remaining 10 per cent going to Tech Pacific management.
“The divestment of Tech Pacific marks the completion of the transformation of the Group from being the owner of a diverse portfolio of businesses into a value-added B2B distribution services group focusing on the markets for electrical materials, safety and other MRO products,” Hagemeyer chairman, Rob ter Haar, said in a statement following the deal’s announcement.
“We are very pleased that Tech Pacific has found a reputable new parent that is committed to building its presence in distribution in the region.”
Hagemeyer first attempted to divest itself of the Tech Pacific Group in 2001 when the combination of high overseas share exposure (61 per cent), deteriorating economic conditions and a worse than expected sales performance forced it to look at a severe program of cost reductions accross the organisation. However, talks with a $US29 billion investment group, CVC Capital Partners, collapsed — reportedly because of Tech Pacific’s poor financial performance.
At the time, Tech Pacific posted its poorest EBITA result in a three-year period (1999-2001) recording 260 million Euros ($454m) decline in annual sales across the Asia-Pacific region compared with the previous year.
Hagemeyer renewed negotiations with CVC earlier this year resulting in a final sale to Techpac Holdings Limited, an investment vehicle established by CVC Asia Pacific Limited, two weeks ago.
“The ultimate sources of funding for this vehicle are international pension funds and Citigroup,” Hagemeyer explained in the wake of the announcement.
“Since these new owners preferred the business to be supported with the continued expertise and extensive network of Hagemeyer’s worldwide relationships, Hagemeyer will keep an interest in the Tech Pacific Group via a participation of 31.5 per cent in the equity of Techpac Holdings Ltd.”
Tech Pacific Group’s first managing director and current CEO of Hagemeyer Asia-Pacific, Graham Pickles, said the sale was part of Hagemeyer’s long-standing objective to re-focus on its core business and not a reflection on Tech Pacific’s financial performance for the company.
“The divestment of Tech Pacific group is in line with Hagemeyer’s stated objective of focusing on its core electrical businesses,” Pickles said. “Tech Pacific has been a well performing part of the group and we are pleased that it has found a reputable new parent who is committed to take the successful group to new heights.”
Both Tech Pacific and CVC maintain the deal is indeed purely financial in nature and will not affect the structure or management of the operation.
“I think this is good news for us,” Tech Pacific’s local MD, Kerry Baillie, said. “Basically, it’s a hands-off arrangement, so there will be no changes in the way we do business, there will be no changes to our structure, management or staff.
“They’re here as an investor and they will assist us in any financial matters because of their relationship with banks. That should make life easier for us.”
Baillie’s comments echo a statement from CVC Asia Pacific managing director, Andrew Cummins, who vowed to “follow the current business plan and strategies adopted by [Tech Pacific] management.
“Tech Pacific is an attractive investment opportunity for us, with businesses in seven countries across Asia,” he said. “It will be business as usual for Tech Pacific, its staff, customers and suppliers. There is an excellent executive team in place which will go forward with the business, consolidating its position as the market leader in Asia.”
Representing more than 60 IT and telecommunications manufacturers in the world, the Tech Pacific Group is the largest distributor in the Asia-Pacific region with sales in 2002 of about $2.8 billion. It employes more than 1500 people in Australia, New Zealand, Hong Kong, Singapore, Malaysia, Thailand and India.
Tech Pacific will be CVC’s first IT distribution acquisition in Asia-Pacific, but not its first Australian investment — the firm previously bought out branded consumer products firm, Pacific Brands in 1998, and building products giant Amatek in 2001, for $730 and $965 million, respectively.
Its only other IT distribution investment is the Danish company Nordic Computer Products which it acquired in 1997.