Bain Capital to Buy China Fire - Analyst Blog
May 24 2011 - 11:15AM
Zacks
China Fire & Security
Group Inc. (CFSG) has agreed to be acquired by Amber
Parent Limited, an affiliate of funds managed by Bain Capital Asia
Fund, L.P. for $265.5 million.
Bain Capital is a global private
investment firm that manages several pools of capital, including
private equity, venture capital, public equity, credit products and
absolute return, with approximately $65 billion in assets under
management. Since its inception in 1984, the firm has made private
equity investments and add-on acquisitions in more than 300
companies worldwide. Bain Capital Asia, the firm's Asian private
equity affiliate, has been investing on the same lines since
2007.
As per the offer, each shareholder
of China Fire’s common stock will receive $9 in cash. The offer
represents a 44% premium over the company's closing price on March
4, 2011, the undisturbed share price prior to the company's
announcement of a receipt of a going-private proposal. The price is
also at a 38% premium over the company's 90-trading day volume
weighted average price calculated as of May 19, 2011.
China Fire’s board of directors has
approved of the merger agreement and would recommend the same to
its shareholders. The merger is expected to close before November
15, 2011. However, it is subject to the adoption of the merger
agreement by an affirmative vote of holders of at least 75% of the
company's outstanding shares of common stock and an affirmative
vote of holders of more than 50% of the company's outstanding
shares of common stock held by the disinterested shareholders, as
well as certain other customary closing conditions. Mr. Weigang Li
and other members of management, who collectively own a total of
16,789,100 shares of common stock and 127,500 shares of restricted
common stock, representing 59.14% of the total voting power of the
company, have agreed to vote on the adoption of the merger
agreement.
China Fire remained in loss
territory in its fourth quarter results. The company reported a
loss per share of 8 cents in its fourth quarter, way short of the
Zacks Consensus Estimate of a positive 23 cents and EPS of 10 cents
in the year-ago quarter. Reported quarter EPS was hurt by
lower-than-expected revenues and gross margins. China Fire reported
an EPS of 52 cents in fiscal 2010, below 86 cents in the prior year
and the Zacks Consensus Estimate of 84 cents.
Total revenue plunged 32.5% year
over year to $11.4 million in the fourth quarter, failing to meet
the Zacks Consensus Estimate of $26 million. Revenue from China
Fire’s product sales exhibited growth but was offset by a decline
in revenue from system contracting projects due to slow
construction progress in the large-scale Wuhan Iron and Steel
retrofitting project.
Revenues dipped 1.5% to $80 million
in fiscal 2010, missing the Zacks Consensus Estimate of $94
million, pulled down by lower revenues from system contracting
projects, which was somewhat offset by increased sales in its
product sales and maintenance services segments.
China Fire primarily serves the
iron and steel, power and petrochemical industries, and relies
heavily on the iron and steel industries for its revenues. Though
the company is now exploring other industrial sectors, we believe
its inability to successfully expand the market for its products
and services in these industries will limit its long-term growth
potential.
However, we look upon China Fire as
a good buyout target and thus await future developments on this
front. The stock currently retains a Zacks #3 Rank (short-term Hold
recommendation).
China Fire & Security Group,
through its wholly owned subsidiary, Sureland Industrial Fire
Safety Limited, is engaged primarily in the design, manufacturing,
sales and maintenance services of a broad product portfolio
including detectors, controllers and fire extinguishers.
China Fire’s clientele comprises
major companies in the iron and steel, power, petrochemical and
transportation industries. It competes with privately held COSCO
Fire Protection Inc., UTC Fire & Security and Western States
Fire Protection Company.
CHINA FIRE&SEC (CFSG): Free Stock Analysis Report
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