Carlyle LBOs Xmas

The buyout firm will take control of top plastic Xmas tree maker, Boto via an HSBC financed LBO.

Has Santa come early this year for Carlyle Group? The firm plans to buy the Xmas tree business from Hong Kong company, Boto for HK$994 million ($127 million).

Carlyle will then become the biggest plastic Xmas tree maker in the world.

It will inject HK$230 million of equity, and borrow $98 million (HK$764 million) to finance the remainder of the bid. HSBC will arrange the leveraged financing and provide an additional $40 million of working capital finance to run the business, fund letters of credit and so forth.

HSBC has long been the house bank to Boto and according to Paul Tay, its Greater China head of the debt markets client group: "We view this as a good business. We have banked this company for a long time. We have a great deal of confidence in the way it has grown."

When HSBC says it is confident about Boto, it is really saying it is comfortable with the Xmas tree business, because Boto is basically a one business company. Its plastic furniture business is pretty neglible. (By selling the Xmas tree business, Boto will sell its core asset and move into new lines of business.)

Indeed, Boto's financials show excellent steady growth from Xmas trees. Since 1994 the company has grown turnover from HK$384 million to HK$909 million in 2001; and net profit from HK$44 million to HK$156 million. Moreover its assets have doubled in the same period from HK$541 million to HK$1.105 billion; and shareholder funds have risen from HK$295.3 million to HK$749 million.

In the eight years since 1994, profits have never fallen and grown on average by 20% per year - although in the last financial year it saw its worst growth of only 2.6%. Indeed, the latter may suggest the business has reached maturity.

The steady nature of the business does suggest that it is an ideal vehicle for servicing a debt load.

HSBC says it will keep a large chunk of the loan itself, but will look to syndicate some of it in May. The loan will have a six year tenor and will price at a level in excess of 200bp over Libor.

HSBC is unable to disclose more about the deal now as an EGM has to be held first by Boto to approve the sale. While Boto is listed, it is a family controlled firm.

And the controlling Kao family is not entirely exiting the Xmas trees business itself. The new Carlyle entity will be 70% owned by the Washington-based fund and 30% by the Kaos. Boto will meanwhile attempt to reinvent itself as an animation company.

HSBC's Tay is confident the loan syndication should go smoothly thanks to the underlying quality of the asset. "This may be a single product business," he says. "But on the other hand, everybody loves Xmas. And as long as there are children, there will be Xmas trees."

Note of caution

One fly in the ointment, may be that David Webb, the minority shareholder activist says he and other shareholders actively oppose the deal as "derisory" for minorities. For more, see his webb-site.com home page.