In what could be a $1.4 billion deal, a management group is teaming with a New York private equity firm to try to buy vinyl siding extruder Nortek Inc.
Kelso & Co. LP may propose to acquire publicly held Nortek in partnership with select members of the current management team, including Richard Bready, Nortek's chief executive officer.
The $1.4 billion figure includes Kelso's suggested offer of $40 in cash per share of 11 million shares of stock, and the assumption of $990 million in debt. Kelso is working on the deal with UBS Warburg LLC of Stamford, Conn., according to a news release from Providence, R.I.-based Nortek.
Nortek officials did not return calls seeking comment. A Kelso spokesman declined comment.
The release said Kelso is not ready to make a formal proposal and has not determined what the terms would be. The firm would finance the purchase through a combination of funds provided by affiliates of Kelso and a portion of cash on hand at Nortek. Kelso has said it would pursue a transaction only if supported by the firm and its directors.
If successful, Kelso's purchase price would be about 6.6 times Nortek's 2001 earnings before interest, tax, depreciation or amortization, said Thomas Blaige, managing director of Lincoln Partners in Chicago. But Kelso also may face competition in its bid, especially in the buyer's market where well-known plastics firms are selling for a premium.
Blaige said the multiple is a solid value, but not a premium, especially compared with recent transactions such as Harvest Partners Inc.'s takeover of Associated Materials Inc., which yielded a multiple of 7.1. Royal Group Technologies Ltd.'s acquisition of Marley Mouldings LLC carried a multiple of 9.9.
``Would I be surprised if it was over 7? No,'' Blaige said. ``This is a very attractive business.''
Nortek owns several well-known extrusion firms, such as Kroy Building Products Inc. of York, Neb.; Variform Inc. of Kearney, Mo.; and Napco Inc. of Valencia, Pa. Last year, it shed two wood-window businesses with a promised emphasis on vinyl.
According to its 2001 annual report, Nortek claims it has grown to be one of the top four vinyl profile producers in North America. Its windows, doors and siding products group made up 27 percent of $444 million in 2001 sales.
Blaige said bidders like Kelso currently are enjoying strong borrowing power.
``They can put forth a more attractive bid, so that's what's bringing them to the thought process that they can actively pursue businesses more aggressively,'' Blaige. ``Will they be the ultimate bidder? We don't know, but at least it makes them more capable to pursue deals.''
Nortek trades on the New York Stock Exchange. Shares were trading April 10 at $41.77.