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Japan's Advantage Partners inks first US deal

Private equity firm Advantage Partners buys GST AutoLeather, a supplier of leather car upholstery to automobile manufacturers, in its first investment outside Asia.
Japan-focused private equity firm Advantage Partners will buy Michigan-headquartered GST AutoLeather for an undisclosed consideration.

Advantage will buy 100% of the equity of GST from its current owner SILLC Holdings. Neither party disclosed the consideration but media has speculated that Advantage will pay around $300 million.

In March 2000 US Industries sold a majority interest in a portfolio of 11 businesses, including GST, to a Citicorp Venture Capital portfolio company, which then created SILLC, a holding company to hold the shares in the acquired businesses. The consideration for the 11 businesses was $600 million, of which $50 million was paid in cash and the balance was assumed debt.

Advantage Partners currently manages over $3.4 billion having launched its first buy-out fund in Japan in 1997. The deal is AdvantageÆs first purchase outside of Japan and comes close on the heels of the firm opening a Hong Kong office as it scouts more actively for non-Japan opportunities.

Strategic outbound M&A by Asian companies has been on the rise as valuations of assets in subprime-affected markets look compelling. But private equity has been proceeding more cautiously as leverage for deals has been drying up. Advantage Partners may well have an advantage here as the financial sector in Japan is still open for business.

Advantage has some exposure to a US investee company. In April 2006 Bain and Advantage teamed up to buy MEI Conlux, which manufactures electronic bill acceptors, coin mechanisms and other unattended transaction systems, from Mars. MEI had dual headquarters in Pennsylvania and Sakado in Japan following MarsÆ acquisition of Conlux in 2003 and subsequent merger with MEI. Indeed, the deal was financed by Citigroup Japan and Nikko Citigroup, making it quite Japan-centric.

More recently, in February, Advantage struck a deal to takeover Tokyo Star Bank (TSB) from private equity owner Lone Star for $2.4 billion. Merrill Lynch, which advised Advantage Partners, and Credit Suisse, which advised Lone Star, participated in the $1.6 billion debt financing alongside Shinsei, Calyon and Bayerishe Hypovereins.

GST supplies leather upholstery to automobile manufacturers globally with a client roster including Toyota, Honda, General Motors, Chrysler, Ford and Volkswagen.

GST was earlier known as Garden State Tanning. It has been in business for more than 70 years. Over the last decade GST has been attempting to move its manufacturing to lower-cost locations to benefit from both lower costs and advantages of moving nearer its main customers to better manage the logistics of the business.

In 1997 GST opened its first non-US cutting facility in Mexico and added another in the country in 2003. Also in 2003 GST finalised details of a joint venture in China to construct a leather finishing operation at Shanghai RichinaÆs existing factory in Boashan, Shanghai. This was GSTÆs first full leather production facility in Asia, supplying seat covers for China and other markets. GST already had a cutting-only operation in Guangdong, China, as well as production operations in the United States and Mexico. GST now has facilities in the Czech and Dominican Republics as well.

In announcing the deal, both Advantage and GST focused on how the private equity firm will help GST to grow. "We believe GST AutoLeather has significant growth potential in the key markets in which it currently competes, as well as in newer markets such as China and the rest of Asia," says Richard Folsom, one of Advantage Partners' co-founders in a written statement.

Goldman Sachs advised Advantage Partners. Neither Goldman Sachs nor Advantage Partners responded to requests for comment. Lazard Freres advised SILLC Holdings.
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