Blackstone braves frigid debt financing market with $14bn Emerson unit deal

Blackstone has agreed to buy a majority stake in Emerson Electric’s climate technologies business in a deal that values the industrial conglomerate’s unit at $14bn and was arranged at a time when debt financing had largely seized up.

The US private equity group, alongside sovereign wealth funds Abu Dhabi Investment Authority and Singapore’s GIC, will buy a 55 per cent stake in the unit in a move that should help accelerate the company’s efforts to streamline its operations.

Emerson, founded in St Louis, Missouri, in the 1890s, is selling business lines to strategic buyers and private equity firms as part of a broader corporate restructuring. It will receive $9.5bn in cash from the sale — $4.4bn of it from Blackstone and the remainder from debt financing sources — that chief executive Lal Karsanbhai said would be used to invest in growth projects.

The company will retain a 45 per cent stake in the business and is providing $2.25bn in seller financing that will eventually be repaid.

The deal would be structured as a joint venture between the two companies until its potential sale or initial public offering, the groups said in a statement. Emerson will also sell ownership in its St Louis headquarters to the joint venture for an undisclosed price and enter a three-year lease as it looks for a new headquarters.

Emerson’s climate tech unit sells refrigeration units, products used in heating and air conditioning systems, and tools that supermarkets use to monitor and manage their lighting and refrigeration systems.

Over the past 18 months, Emerson has sold “non-core” businesses including garbage disposal machinery and temperature sensors as it seeks to reinvest in its most important business of selling automation machinery to the automotive, energy and industrial sectors, among others.

Blackstone, which arranged the debt financing package, believes the deal underscores its financial clout at a time of broad market dislocation. To get it done, Blackstone worked with sovereign wealth funds that were two of the firm’s most important clients, while also arranging a complex financing package.

“This is a marquee transaction for our private equity business and a testament to our ability to deliver solutions to our partners even in difficult economic and market environments,” said Joe Baratta, head of Blackstone’s private equity business.

Since the spring, banks have been less willing to provide debt financing for big leveraged buyouts, having struggled to sell on the debt they agreed to provide for several of these deals earlier this year.

Tightening financial conditions as interest rates rise and the economic outlook has become uncertain have slowed the progress of many large corporate restructurings undertaken by conglomerates such as Emerson and cooled off private equity interest in significant corporate carve-outs.

Yet there is still keen interest by private equity groups to pursue these deals by enlisting increasingly powerful private capital sources such as large sovereign wealth co-investors and private lenders to get them completed.

Blackstone has already placed more than $5bn of debt for the acquisition. A revolving credit facility and term loan covering a portion of the debt is being led by RBC Capital Markets, Wells Fargo and SMBC. A consortium of private lenders including Sixth Street, Goldman Sachs Asset Management and Apollo Global are participating in a private term loan, according to sources familiar with the matter.