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Who Is the New Majority Owner in PPG's Auto Glass Business?

Kohlberg & Co. may not be as well known as the similarly named private-equity powerhouse firm Kohlberg Kravis Roberts & Co., but it will probably become better known in the glass industry as it will soon be the majority owner of the now renamed Pittsburgh Glass Works, which used to be known as PPG Auto Glass. (CLICK HERE for related story.)

Since inception in 1987, Kohlberg has completed more than 45 platform investments and more than 50 add-on acquisitions, with aggregate transaction value in excess of $7 billion. Kohlberg has invested over $2 billion across six private equity funds to date, including through its current $1.5 billion sixth fund, Kohlberg Investors VI.

The company specializes in buyouts, recapitalizations and equity investments of middle-market companies (valued between $100 million and $500 million) in industries ranging from machinery and equipment, to food and consumer, to healthcare. Kohlberg typically invests $30 to $125 million in the companies in its portfolio.

Kohlberg & Co. says it invests in both stable companies with consistent cash flow, and in underperforming companies with operational deficiencies. While the firm has made a large number of investments in traditional manufacturing businesses, it also has focused on food, healthcare, service and other businesses where it perceives substantial opportunities for improved performance.

Financial analysts have noted that the larger private equity firms have become less active, while smaller ones such as Kohlberg & Co. are still relatively active, according to Hoover's Ryan Caione in the company's Bizmology column on its website.

A common strategy for private equity firms is to buy a company when it is unattractive, particularly to a larger entity (PPG has clearly focused on its specialty chemicals business in recent years) and then sell it when its market segment improves. Announcement of the PPG deal came on the heels of major sales declines by U.S. auto manufacturers.

Kohlberg has also been very active internationally and in one of its latest transactions sold Italian steel cord manufacturer Redaelli Tecna S.p.A., which it acquired in 1999 to Russian company Severstal-metiz Group.

While there are concerns among PPG employees because of the change, millions of dollars of equipment are being installed in the Creighton automotive glass plant, which would bode well for continued operation.

There is nothing closely related to the auto glass business, or the glass business in general, in Kohlberg & Co.'s past or present portfolio. The company has been involved in such industrial companies as Northwestern Steel and Wire Co. In the construction segment, Concrete Technologies Worldwide is part of the current holdings, having been acquired in 2007.

Kohlberg & Co. was formed by Jerome Kohlberg Jr., the senior founding partner of Kohlberg Kravis Roberts & Co. (the well-known KKR of "Barbarians at the Gate" fame), and James A. Kohlberg.

James Kohlberg, who currently serves as chairman of the company, was with KKR from 1984 to 1987 and was involved in the buyouts of Safeway Stores and Red Lion Inns. Prior to joining KKR, he was employed by Merrill Lynch.

Jerome Kohlberg Jr., who was ranked by Forbes as the 317th richest person in the world in 2007, retired from the business in 1994.

In 2007, Kohlberg & Co. had 4,500 employees and annual sales of 1.114 billion in the same year.

The deal between PPG and Kohlberg is expected close in the third quarter of this year. Under the agreement, PPG will receive $330 million in gross cash proceeds plus a minority ownership interest of approximately 40 percent in the new company, subject to closing adjustments.

 

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