Blackstone to Take Over Gates Global? - Analyst Blog

The Blackstone Group L.P. BX is set to close a deal with equity investment firms, namely Onex Corp and the Canada Pension Plan Investment Board (CPPIB) to acquire Gates Global Inc. Though the deal is expected to be completed by next week, nothing has been confirmed officially as the companies are yet to sign a legal agreement.

Earlier, Blackstone along with private investment firm TPG Capital Management LP had submitted a joint bidding price of $5.4 billion. The cited price failed to meet Gates Global's expectations and this compelled TPG Management to back out from the deal.

Subsequently, Blackstone raised the offered price in the range of $5.5–$6 billion. The new offer price is tentative according to media reports and will be confirmed as and when the companies come out with their press releases.

Gates Global caters to a wide range of industries such as oil and gas, energy, mining, marine, agriculture, transportation and automotive industries. Therefore, the aforementioned deal, which is part of Blackstone's inorganic growth strategy, will expand its reach to a diverse range of industries.

Gates Global reported sales from continuing operations of nearly $2.9 billion for fiscal year 2013 (ended Sep 28). This generated operating profit of $300.3 million, up 59.1% year over year.

Moreover, the company had assets worth $4.9 billion as of Dec 31, 2013. Considering these factors, Gates Global will likely be profitable for a private equity firm like Blackstone, which is constantly on the lookout for lucrative investment opportunities.

However, there is a chink in the armor. In Dec 2013, Gates Global had filed for an initial public offering (IPO) and is yet to be listed. If the IPO gets overwhelming response, the market value of the company will increase. Therefore, if Blackstone is not able to crack the deal before the public offering, it might have to offer an amount higher than its latest quoted price.

At present, Blackstone has a Zacks Rank #3 (Hold). Some better-ranked investment managers include Fortress Investment Group LLC FIG, Calamos Asset Management Inc. CLMS and Lazard Ltd. LAZ. All these stocks sport a Zacks Rank #1 (Strong Buy).