Bank Leumi threw a financial lifeline to Markstone Capital Partners Wednesday, agreeing to buy the indebted private equity fund’s 20% stake in the nylon fibers producer Nilit.
The final price for the shares has still not yet been set, but it will be in the range of 200 million to 300 million shekels ($583 million to $875 million), with the final amount to be determined by a mechanism based on Nilit’s future financial performance. While the company presented Leumi with an optimistic business forecast for coming years, sources said Leumi was unwilling to value the company based on its future performance, which is why an element of milestone payments was put into the agreement.
Markstone will use the proceeds it receives from the sale in large part to pay off most of the $70 million loan it owes to Germany’s Deutsche Bank, which holds Nilit shares as collateral.
When completed, the acquisition will be one of Leumi’s largest in recent years, along with its investments in cellular operator Partner Communications, the non-woven fibers company Avgol and the operator of the Trans-Israel Highway toll road (Route 6). By law, however, Leumi is not allowed to own more than 20% of a nonfinancial company, so it will have to find a solution for who controls another 0.7% of Nilit. For now, sources said, Leumi has no intention of bringing another partner into the deal.
Based in Migdal Ha’emek, the closely held company employs 1,700 people around the world and has manufacturing facilities in Germany, Italy, China and the United States as well as in Israel. Its revenues are in the range of hundreds of millions of dollars a year, it pays dividends and had earnings before interest, taxes, depreciation and amortization (EBITDA) of over $50 million last year.
The company, whose controlling owner, Michael Levy, owns 79.3% of the shares, has made large investments in recent years in both existing facilities as well as acquisitions.
Markstone, which has invested $73 million in Nilit since 2005, has been faced with crushing debt and the death of one of its founding partners this spring. To raise cash, its managing partner Ron Lubasch sold the Steimatzky bookstore chain last month, and is trying to divest its minority share in the investment house Psagot. Before the agreement was reached, Leumi Partners, the unit of the bank that will buy the stake, received several months of exclusivity to carry out due diligence of Nilit, which was rather complicated both financially and legally, as it is a large company with global operations. This is not the first time Leumi has cast its eye on Nilit; a few years ago the bank made preliminary contacts over taking a stake but nothing came of it. Leumi and Bank Hapoalim provide most of the financing for Nilit.