Both invested $1.2 bn for a combined 22% stake in UPL Corp. to help acquire Arysta
Sovereign wealth fund ADIA and leading global alternative asset firm TPG have partnered UPL Corp.’s acquisition of Arysta
Agrochemicals firm UPL Ltd may buy back the stakes of Abu Dhabi Investment Authority (ADIA) and TPG Capital, which helped the Mumbai-based company acquire Arysta LifeScience Inc. for a record $4.2 billion, after the expiry of a three-year lock-in period.
“Suppose TPG and ADIA have a stake in a step-down subsidiary, they have a lock-in period of three years. They can exit after that. If they sell to any other PE (private equity), we have right of first refusal. They have an option to list the entity also," Anand Vora, UPL’s global chief financial officer said in a phone interview.
Sovereign wealth fund ADIA and leading global alternative asset firm TPG have partnered UPL Corp.’s acquisition of Arysta, which closed on Monday.
As per the tripartite agreement, ADIA and TPG Capital Asia invested $1.2 billion ($600 million each) for a 22% combined shareholding in UPL Corp., a unit of listed parent UPL, to facilitate UPL Corp.’s acquisition of Arysta.
“Most probably we could end up buying back 50% of what they have got now, and another 50% swap it into UPL shares," Vora said.
The combination of UPL and Arysta will generate revenue of around $5 billion a year, and UPL expects the deal to provide total synergies, or joint benefits, worth $250 million over the next 1-2 years.
Vora said UPL could have made the bid for Arysta on its own since it had support from its lenders, but given the size of the deal and the risk attached, the company decided against it. “...but we thought it is best to de-risk ourselves. It is a large transaction so, it is good to de-risk. It also makes strategic sense to have partners like them. ADIA is a very long-term partner and, to have such names associated, will definitely help us."
According to Vikram Shroff, executive director, UPL, the company will also look at multiple ways to grow its business inorganically. While it continues to scout for more acquisition targets, Shroff said UPL does not want to leverage itself too much for acquisitions. “Two things we don’t like when we look at any acquisition is dilution—we don’t want to dilute equity and for us to retain our investment rating is also very important. We will not leverage it beyond a certain point," Shroff said. “Considering valuations and synergies, if we get companies in the range of five to six times EBITDA multiple, we are happy to look at it."
The acquisition will spread UPL’s operations to new markets. “The geographical overlap is very, very less... We are very small in these places (in Eastern Europe, Africa and Russia). We are strong in India, and their (Arysta’s) sales in India is not even ₹100 crore. Similarly, in other markets, if we are present in the north, they are present in the south," Shroff added.
“…also, reflected by the fact that 32 countries gave us antitrust clearance in record six months. So, (there is) very little overlap."
The combined entity has a footprint in 76 countries and sales in over 130 countries. It offers an integrated portfolio of both patented and post-patent agricultural solutions for various row crops and speciality crops.
UPL, formerly United Phosphorus Ltd, began as a producer of red phosphorus, used in safety matches and pesticides, in 1969.
For the quarter ended 31 December 2018, UPL reported stand-alone profit of ₹10 crore on revenue of ₹2,216 crore, a sharp fall from the previous quarter’s net profit of ₹348 crore on revenue of ₹2,275 crore.