Private Equity Firm New Mountain Capital Takes Zep Inc Private


April 9, 2015

US-based maker of maintenance and cleaning chemicals, Zep Inc., has agreed to a deal with private equity firm New Mountain Capital. The firm will take Zep Inc. private in a deal worth around $692 million, including debt.


As the companies announced the deal on Wednesday, the premarket trading figures saw the company’s shares increase by over 18%, according to Reuters. The pre-market figure stood at $20.23 per share, whereas the offer price was a bit below this at $20.05 per share.


New Mountain Capital Continues Pursuing Long-Term Capital Appreciation
The New York-based private equity firm currently has around $15 billion invested in aggregate capital commitments. The firm has been keen to invest in niche industry sectors and building up companies. The approach is different to some other private equity firms who mainly focus on debt.


New Mountain Capital’s managing director, Matthew S. Holt, highlighted the sentiment in the official press release by stating, “Zep Inc. is an industry leader with significant growth potential and fits perfectly with New Mountain Capital’s investment philosophy of investing in market leaders in sustainable growth industries.” Mr Holt went on to say, “We look forward to joining with the Zep Inc. management team and all of the company’s talented associates as we continue to serve Zep Inc.’s global customer base.”


Search for Strategic Opportunities
The company has been reviewing different strategic alternatives for the past year and felt the option to go private is best option at hand. John K. Morgan, the chairman, president and CEO of Zep Inc., said in the official statement, he feels the deal with the private equity firm “delivers immediate and substantial cash value to our stockholders”.


“We are also confident that this transaction will allow Zep Inc. to continue to deliver the high quality products and services our customers have come to expect from us as well as provide additional opportunities for our associates from future growth and business building,” Mr Morgan said. According to Reuters, the company has been able to increase its sales during the last quarter, mainly as the demand from the transportation industry and retail home centres has gone up. Nevertheless, Zep Inc.’s shares have been declining by almost 6% in the past 12 months, with the company’s value dropping to around $394 million.


Finer Details
Market Watch revealed on Wednesday, the private equity firm would receive $460 million in cash. The per share offer of $20.05 represents a 17% premium over the company’s closing price on Tuesday’s trading. The board members of Zep Inc. approved the deal unanimously, with the deal expected to close in the third quarter and it has to gain the regulatory approval. Furthermore, there is still possibility that another party could get involved, as the deal allows the company to solicit alternative proposals.


Although the Zep Inc. deal is not as big as Tuesday’s announcement by private equity firm Permira to acquire the data software company Informatica, it nonetheless highlights private equity firms’ strong return to buying listed companies.

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