Win/win for Carlyle and Axalta

Carlyle Group has made a profit of $4.5bn following the sale of its remaining stake in Axalta.

The Washington-based private equity firm orchestrated a $4.9bn buyout in what was then called DuPont Performance Coatings in 2013, which many competitors said was an inflated price.

The group itself invested $1.53bn and according to regulatory filings that value subsequently swelled to $5.8b to earn Carlyle $4.5bn in profit – or an annual return of 80%.

This represents the second largest profit margin in Carlyle’s history.

Martin Sumner, a Carlyle managing director who led the Axalta deal, said, ‘The challenge for us is how to pay more than anybody else in the world – because that’s the only way you win, really – and still generate a good return. Our carve-out experience played an essential role. We’ve gotten to a point where have some pattern recognition on these deals.’

Carlyle expressed an interest in the DuPont unit as early as 2011. The following year a formal sale process was initiated, with the auction drawing interest from a number of private equity firms. After multiple rounds of bidding, Carlyle’s offer of $4.9bn was accepted.

Martin Sumner continued, ‘It was intense, competitive and our bid went up over time. But we’d gone into the auction process fully loaded.’

Charlie Shaver, who helped Carlyle conduct due diligence, was appointed CEO of the company which was immediately renamed Axalta. He had already identified ways to improve operations to battle the likes of PPF, BASF and AkzoNobel for market share.

This included refocusing the company’s auto-refinishing unit to win business from growing multi-shop operators, rather than individual car shops.

He also reorganized Axalta’s management to fit his strategy, with 80 of the company’s top 120 people either reassigned or replaced to ensure the company had managers that focused directly on major customers.

‘We wanted everyone to be market-facing, not insular,’ he said.

Earnings before interest, taxes, depreciation and amortization jumped 20 per cent the following year, and rose again by 3.2% in 2015. Axalta is now valued at $9.6bn and shows no signs of taking a backwards step, with four acquisitions on three continents announced in the past six weeks.

The goal, says Shaver, is to increase sales by 50 per cent to $6bn in the next three to five years.