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American private equity company KohlbergKravis Roberts (KKR) will purchase a 90 per cent stake in specialisedtyre maker Alliance Tire Group from rival PE fund WarburgPincus and owner Yogesh Kumar Mahansaria for an enterprise value of about $650 million, including a debt of $125 million, according to two people familiar with the transaction.

“The deal is likely to be announced this week as all the three sides have agreed on the financial terms and have more or less completed the legal formalities,” said one of the persons quoted above. ET reported on March 12 that KKR had emerged as the frontrunner to acquire Warburg Pincus’ 80 per cent stake in Alliance Tire Group. Warburg Pincus will exit the company by selling its 80 per cent stake while Mahansaria will own a 10 per cent stake after selling 10 per cent to KKR.

The acquisition would be the second leveraged buyout (LBO) deal in the country after seven years. In an LBO transaction, the acquirer finances the deal through a combination of equity and debt and the interest cost of funds borrowed to finance the deal is paid by the company that was acquired.
KKR was the first to execute an LBO deal in 2006 when it purchased Flextronics (formerly Hughes Software Solutions), a maker of telecom software products and services, for $900 million. KKR, which acquired Flextronics even before it set up an India office, is yet to exit from this investment. Sanjay Nayar, CEO, KKR India, and Vishal Mahadevia, MD and India co-head for Warburg Pincus, declined to comment. “I am not in a position to comment,” said Mahansaria.

Israel-based Alliance Tire manufactures a wide range of so-called off-highway tyres (used in vehicles such as tractors and earthmoving equipment). The company supplies to customers in over 120 countries. Warburg Pincus along with Mahansaria, had acquired the company in 2007 for an enterprise value of about $150 million. “This is the one of the successful exits for a PE firm as Warburg Pincus will earn more than three times in a little over six years, that too without listing the investee company,” said the CEO of another PE firm. “This is contrary to the industry trend where large number of investments by PE firms made during that period of pre-2008 are stuck due to lower returns,” he added.

The company, which has been around for six decades according to its website, owns two manufacturing plants, one at Hadera in Israel and the other in Tirunelveli in southern India. It is also investing close to $60 million in a new plant in Gujarat. It owns R&D centres in Israel, United States, India and South Africa, which helps the brand in becoming the preferred supplier.

“After the acquisition in July 2007, the consortium of Warburg Pincus and Mahansaria changed the business model and had made fresh investment to set up a greenfield project in Tirunelveli that has brought down the cost of production while the Israel unit continued to cater global market in the premium segment category,” said another person. “The company revenues for the current fiscal would be around $650 million. The operating profit for 2013 will be in excess of $100 million,” said the second person.
Source: Times of India

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